Soaring construction costs and increasing attention to the environment are triggering a reorientation of property developers in Eastern Europe towards the green renovation of existing buildings rather than the construction of new ones.
According to Kristof Barany, Managing Partner at Adventum Zrt., Which buys and manages properties, the growing demand for buildings with higher environmental profiles has already boosted the returns on these assets, while real estate transactions without ESG ratings are scarce. in Hungary, Poland, the Czech Republic and Romania.
“For many international institutional investors, ESG is becoming an entry point for investments,” said Barany, whose fund manages a real estate portfolio of 600 million euros ($ 696 million), in an interview with Budapest. A rating regarding the environmental, social and governance impact of an asset adds around 10 to 25 basis points to the output returns when selling a property, he said.
Adventum announced Wednesday that its Penta fund has purchased the headquarters of Daimler AG in Warsaw for around 50 million euros. The building, developed in 2004, currently does not have an ESG rating and Adventum plans to earn one following energy efficiency improvements, Barany said.
Renovation, including improved insulation and the introduction of solar panels, becomes relatively more cost effective compared to new construction, as costs skyrocket. Inflation in the region is at or near its highest level in a decade or more, with building material prices rising even faster.
It can also be a greener solution than razing an old building and building another in its place, even if the new one is a low-emission or zero-emission property, according to Barany. He said 30-50% of a building’s lifetime emissions occur during construction.
Real estate transactions in the eastern part of the European Union fell to 9.7 billion euros ($ 11.2 billion) last year amid the coronavirus pandemic, from a record 14 billion euros in 2019, according to data from Jones Lang LaSalle Inc.
Barany said business would pick up as the region shows strong economic growth and the pandemic accelerates “near-shoring,” a process by which companies shorten their supply chains and move outsourcing activities closer to their headquarters. social, which is generally located in Western Europe.
The office market in Eastern Europe is expected to become tight within two to three years as demand increases and new developments slow due to rising costs, Barany said.
Adventum is 90% funded by institutional investors, including German pension funds as well as the Hungarian broker Concorde. The group is acquiring real estate with returns above 8% and aims to increase assets under management to € 1 billion by mid-2022, Barany said.
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