London, UK

Real Estate’s Green Transition Relies on Non-Bank Lenders Says CBRE Investment Management

April 27, 2022


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Helen Stott

Corporate Communications Director

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CBRE Investment Management (“CBRE IM”) has released a new report examining the role of credit in upgrading European commercial real estate to meet future ESG standards.

In the UK, as of 2023, it will be illegal to let a building with an EPC rating below E; from 2030, it is proposed that this will also be the case for building rated below B, with an interim target of C by 2027. In Europe, EPC regimes vary, but corporate occupiers are driving demand for assets that perform to high EPC standards. CBRE IM’s paper looks at how the green transition will be financed noting that.  

  • 60-75% of non-residential real estate stock across Europe is in need of refurbishment to comply with EPC B standard 
  • The stock of debt this represents is an estimated €720-900bn, of which approximately half (€360-450bn) will be office
  • The cost of upgrading an office from an EPC rating of F or G to B or C has been estimated by PMA at circa £200-300 per sq m - a cost that far exceeds standard maintenance
  • Capital expenditure required for ESG-led refurbishment projects as a proportion of asset value, is approximately 22% (based on CBRE’s 2021 sample of ESG retrofit loan requests)

Banks alone cannot provide the required financing – regulation (Slotting, Basel IV) will encourage them to shy away from value-add lending – meaning that non-bank lenders will be required to support the funding need. 

Dominic Smith, Senior Director, Credit Research at CBRE Investment Management, said: “With a significant majority of real estate rapidly requiring an energy efficiency upgrade, and concerns about banks’ ability or preparedness to finance projects in sufficient volume, the need for an alternative source of funding is clear – as is the size of the opportunity. Non-bank lenders who have built capability to meet one of real estate’s most pressing challenges will be able to deliver strong returns and improved ESG performance to investors.”

He adds: “However, the sheer scale of the task compared with their aggregate size means these lenders will effectively pick and choose the schemes that offer the best margins and strongest location fundamentals. The risk is that retrofitting will be concentrated in the most desirable areas, perhaps leaving some areas with a shortage of lettable stock.”

About CBRE Investment Management

CBRE Investment Management is a leading global real assets investment management firm with $141.9 billion in assets under management* as of December 31, 2021, operating in more than 30 offices and 20 countries around the world. Through its investor-operator culture, the firm seeks to deliver sustainable investment solutions across real assets categories, geographies, risk profiles and execution formats so that its clients, people and communities thrive. 

CBRE Investment Management is an independently operated affiliate of CBRE Group, Inc. (NYSE:CBRE), the world’s largest commercial real estate services and investment firm (based on 2021 revenue). CBRE has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE Investment Management harnesses CBRE’s data and market insights, investment sourcing and other resources for the benefit of its clients. For more information, please visit

*Assets under management (AUM) refers to the fair market value of real assets-related investments with respect to which CBRE Investment Management provides, on a global basis, oversight, investment management services and other advice and which generally consist of investments in real assets; equity in funds and joint ventures; securities portfolios; operating companies and real assets-related loans. This AUM is intended principally to reflect the extent of CBRE Investment Management’s presence in the global real assets market, and its calculation of AUM may differ from the calculations of other asset managers and from its calculation of regulatory assets under management for purposes of certain regulatory filings.