The Trends Putting Real Estate Decarbonisation Under Pressure

For years, parts of the real estate market have been able to treat decarbonisation as a medium-term issue: something to plan for, signal against, and gradually work into asset strategy. That window is narrowing.

This article explores a set of trends that point in the same direction; the industry is behind. The assumptions many portfolios still rely on are weakening. And the gap between what looks credible on paper and what is being delivered in operation is becoming harder to ignore.

The Performance Gap Between Design and Operation Is Widening

There is a significant and growing disconnect between how buildings are predicted to perform at design stage and how they actually operate.

This is not just a new-build problem. It runs across the entire spectrum of the built environment – from assets designed before modern energy regulations existed, to those built under current standards, to recently completed stock.

The majority of assets operating today were built before energy efficiency requirements existed in their current form. These buildings were never designed to perform to today’s standards, let alone tomorrow’s carbon pathways.

But the gap does not stop there.

Even assets developed under progressively stricter building regulations carry a significant performance shortfall, in large part because the regulations themselves were not designed to predict operational reality. It is now common to find assets with strong design-stage ratings that are operationally consuming far more energy than their models anticipated.

This reflects a performance gap that arises because design-stage frameworks were developed for different purposes at different times. EPCs, for example, in most cases across Europe, assess regulated loads at design stage rather than total operational consumption and were never intended to predict real-world energy use. A high EPC rating is therefore not necessarily evidence of strong operational performance.

EVORA’s own analysis across more than 2,000 assets found no statistically meaningful correlation between EPC rating and actual operational energy intensity. A median A-rated building in our dataset performed no better – and in some cases worse – than a median C or D-rated equivalent.

This reinforces that EPC ratings are a modelled output, not an operational delivery measure.

The real scale of the delivery gap only becomes visible when design-stage benchmarks are set against actual meter data. Tools such as NABERS and the GRESB Operational Benchmark reveal consumption realities that certification ratings structurally cannot capture. Even if a building performs exactly as its design model intended, the gap between that model and actual occupancy-driven consumption can still be significant.

Even recent developments are not immune. A 2020 building with a strong design-stage rating using gas-fed CHP may breach Carbon Risk Real Estate Monitor (CRREM) carbon limits within a single hold period.

For institutional investors managing standing portfolios, carbon risk cannot be assumed away or excused by asset age, certification status, or recent acquisition date. The performance gap is a portfolio-wide exposure.

EVORA’s analysis of approximately 750 UK assets across office, industrial and retail – a sample drawn from our wider dataset – shows that 34% of offices and 58% of assets across all commercial sector types will be misaligned with their CRREM 1.5°C pathway by 2030 on a business-as-usual basis. For portfolios with interim targets in 2030, that window for action is already four years away. Planning for the required interventions needs to start now.

The performance gap is rarely the result of one factor or issue. It is a compounding of operational realities that are routinely overlooked. Unregulated loads, sub-metering blind spots, value engineering, and commissioning drift all contribute to the same outcome: assets that underperform in operation, often from day one.

The Capital Allocation Lag

The International Energy Agency estimates that global buildings-sector investment must more than double this decade to remain on track with Net Zero pathways.

In real estate portfolios, however, decarbonisation capex is still often discretionary, conditional on refinancing events, or deferred to be completed during refurbishment cycles, and sometimes even missed during redevelopment periods that can still focus on like for like replacement, meaning systems are locked in for another refurbishment cycle.

This creates structural lag:

• Targets may be longer term, but actions required to achieve them are immediate.
• Refurbishment cycles are 10–15 years.
• Paris misalignment, as often measured in real estate by CRREM analysis, can occur within a single hold period.

The Bank of England’s Climate Biennial Exploratory Scenario concluded that late action significantly increases credit losses in commercial real estate exposures. In other words, delay does not reduce cost – it compounds it.

The sector is running a timing mismatch:

• Climate pathways are exponential.
• Capital planning remains linear.

Markets Are Signalling – But Not Yet Fully Pricing

MSCI Sustainability Institute research indicates that properties with elevated Climate Value-at-Risk are still priced broadly in line with lower-risk peers. That suggests mispricing persists.

History shows that financial markets tend to reprice stepwise, not gradually. Larry Fink, as CEO of BlackRock, in his annual letters, has repeatedly noted that capital will flow toward assets with credible transition strategies. Debt providers and insurers are beginning to incorporate forward-looking carbon exposure into underwriting.

The direction of travel is clear across central banks, capital allocators, and debt markets. What has not yet arrived is the full repricing – but history shows that when markets correct mispriced risk, they do so suddenly, not gradually.

What Comes Next

Real estate is moving into a period where decarbonisation risk is becoming harder to separate from investment risk. EVORA’s latest whitepaper ’The Delivery Gap: Why Real Estate’s “Paper Targets” Are Becoming a Pricing Risk’ explores why that shift is happening, and what it means in practice for portfolios, assets and decision-making.

This article has focused on three of the trends shaping that risk: the widening performance gap between design and operation, the lag in capital allocation, and the fact that markets are signalling change even if full repricing has not yet arrived.

The full whitepaper goes further. It explores the remaining trends reshaping the market, including regulatory divergence, the limits of relying on grid decarbonisation, and the growing importance of understanding misalignment risk through both energy use intensity and carbon intensity.

Taken together, they point to the same conclusion: this is not simply a reporting issue or a compliance issue. It is becoming a question of capital planning, asset strategy and value protection.

To read the full analysis, download The Delivery Gap: Why Real Estate’s “Paper Targets” Are Becoming a Pricing Risk.