How unsustainable buildings could become stranded assets

BERLIN — Investors have been warned of assets becoming stranded in the coming years due to poor sustainability ratings.

Speaking at the International Hospitality Investment Forum in Berlin, David Kellett, managing director of hotel transactions at Invesco Real Estate, highlighted that in the U.K. for instance, all nondomestic rented buildings will need to meet Energy Performance Certificate (EPC) Band B by 2030.

“That’s seven and a half years away, that’s not very far, so if you’re selling an [E Band] asset this year, don’t be surprised if you’re seeing a big reduction in [capital expenditures from the buyer in five years’ time,” he said while on a panel exploring the changes to the hospitality investment landscape. “We will start to see deals that don’t get done because assets will be stranded.”

He added that the hotel market was not necessarily seeing the "green premiums" that environmentally certified office stock could demand: “You can charge more rent if you’ve got full sustainability credentials. You don’t necessarily see that in hotels because it depends what the guest will pay and how much you get out of the bottom of that.”

Invesco announced a partnership last year with hotel group Westmont Hospitality to co-invest in 13 IHG-branded hotels in Germany and the Netherlands.

Kellett also suggested hotel brands have “a huge role to play” in the progression of environmental, social and governance initiatives, with brand standards potentially conflicting with ESG policies and targets.

David Anderson, EVP – international, Interstate Hotels & Resorts, which has 129 properties across the U.K., western Europe, Eastern Europe and Russia/CIS, said there was a “big willingness from the industry” to get ESG standards aligned.

Patrick Fitzgibbon, SVP development Europe, Middle East and Africa at Hilton, which has nearly 6,900 properties in 122 countries and territories, emphasized that both customers and team members expect hotels to be making progress in ESG, and more and more customers are making buying decisions based on it. “It’s not just one or two—this is the majority of corporate clients,” he said.

The business plans to open the first anticipated net-zero hotel in the U.S. later this month, the Hotel Marcel New Haven, Tapestry Collection by Hilton, in Connecticut.

Further changes to the market panelists reported included more competition on transactions with fewer deals “at the right price point,” according to Robert Mangan, director, Bain Capital. He said that further distressed assets are expected to hit the market due to cost inflation and government subsidies winding down.

This article originally ran on Hospitality Insights, a sister publication to Hotel Management.