Navigating Sustainability and Real Estate Value in 2025

The era of treating sustainability as a checkbox exercise is over. As market confidence returns to European commercial real estate, with the latest market sentiment indicator reaching 57.8 in December 2024 (INREV Consensus Indicator), a fundamental shift is occurring in how buildings are valued. While regulatory pressures and reporting obligations continue to mount, the real driver of value is emerging elsewhere: in actual building performance.

Analysis of nearly 1,000 commercial assets across CEE shows that over half will face functional obsolescence and stranding events by 2024-2025, according to JWA. But beneath this challenge lies opportunity. Properties achieving measurable performance improvements—from energy efficiency to occupant well-being—command up to 20.6% higher capital values with BREEAM certification.

What is driving this shift is not regulation—it is risk management. Buildings that cannot demonstrate resilience, face a stranding risk. According to CBRE's latest European investor survey, 32% are now willing to pay premiums for ESG-friendly assets, while 67% will pay extra for features that enhance occupant health and wellbeing.

This evolution in valuation practice is creating new complexities. Real-world data shows:

    • Operational improvements delivering immediate 18-29% energy savings in warehousing assets (JWA)

    • Smart building system upgrades extending asset viability to 2035 through phased improvements (CRREM Analysis)

    • Capital values averaging 20.6% higher for certified sustainable buildings (JLL Research)

The market is splitting into two clear groups: buildings that can prove their performance, showing professional audits, and those that were not audited. Banks want to see taxonomy alignment and green certifications before lending, with BREEAM Excellent or Outstanding certification increasingly becoming a baseline requirement for competitive financing terms. "Banks prefer new buildings because they offer stable cash flows. But if they do not finance renovations, that stability will not last. Tenants are already moving away from buildings with high emissions. It's simple: properties that do not meet new sustainability standards will lose their tenants," says Joanna Ałasa President of the Management Board, and Leader of the POLSIF Banking Standards Center.

The combination of stabilizing interest rates and maturing sustainable finance frameworks positions 2025-2026 as a pivotal period for real estate investment. Recent INREV market analysis reveals that 37% of European investors anticipate yield compression in early 2025— though notably, these improved returns are expected exclusively for assets with demonstrated operational excellence. This emerging market dynamic creates a clear opportunity for strategic positioning, mainly as sustainable building performance increasingly influences valuation and investment decisions.

Our JWA analysis shows a clear turning point. Most buildings will hit their stranding year by 2024. Simple operational improvements can extend this to 2028. The math is straightforward but compelling. Significant sustainability improvements typically require 12-24 months from planning to completion. Those starting in 2025 can capture significant advantages. 

“Due to changes in regulation as well as more focus on sustainability from the finance sector, the market will continue to favor investments in building projects that have sustainable building certifications, such as LEED or BREEAM, as these confirm that the building meets certain sustainability standards. The taxonomy will provide additional decision-making support, helping banks to identify projects that comply with sustainability criteria.” says Jerzy Wójcik, CEO of JWA, a leading European sustainability consultancy.

Leading developers are shifting focus to value-added opportunities in refurbishments and conversions, recognizing the potential to combine necessary upgrades with sustainability improvements. Early movers are seeing 18-29% operational savings, enhanced financing terms, and stronger tenant demand.

Recent projects validate this approach. The recent Diuna (formerly Marynarska Business Park) transformation achieved 80% savings on HVAC systems and significant primary energy demand reduction while creating measurable improvements in occupant satisfaction. These results demonstrate how operational improvements can drive both environmental and financial performance.

Incorporating ESG factors into the real estate valuation process is emerging as a key challenge for the industry, both in Poland and across Europe, driven by the need to better reflect the impacts of climate change, tenant preferences, and social considerations. Studies indicate that property appraisers face difficulties in integrating these factors, highlighting the necessity of developing standardized valuation frameworks that incorporate ESG (PWC & ULI (2024), J.Panas (2024)).

“The adoption of internationally standardized valuation frameworks that incorporate ESG standards, supported by education and international collaboration, would enable a more accurate representation of the sustainable characteristics of properties, enhance market transparency and facilitate more effective adaptation to rapidly evolving regulatory and market conditions.” says Jolanta Panas PhD., ESG Property Transition & Green Finance Expert at JWA

Success requires moving beyond generic 'green' features toward comprehensive asset transformation. The scale is immense—an estimated $83 trillion globally will be needed to upgrade building stock to meet net-zero targets by 2050 (PEI Market Research). However, 74% of European investors expect rental income to be the primary return driver in early 2025 (INREV Consensus Indicator), making performance improvements increasingly critical to asset value. 

In conjunction with our partnership with Entralon, the Warsaw Business Journal is conducting exclusive interviews with distinguished real estate professionals to exchange valuable insights and explore investment strategies that pave the way for a more prosperous future.