EU Building Renovation Wave: Market Factors Driving Change, but Uncertainty Remains


Up to 75% of existing buildings in the European Union are energy inefficient and, according to EU regulations, will require renovation. Furthermore, the EU states that the pace of property modernization should be twice as fast as it currently is, although this is still significantly below the rate of change recommended by other leading industry analytical centers, such as The Buildings Performance Institute Europe. Failure to adapt a building to new requirements carries the risk of fines for the owner and loss of competitiveness in the eyes of tenants and investors.

In their latest report titled “Europe’s Renovation Wave” Colliers experts analyze the regulatory and social pressure currently driving building modernization, and proactive actions that investors, owners, and tenants are taking or can take to ensure their assets don’t fall behind in the race to decarbonize construction by 2050.

Market Factors Driving the Renovation Wave

According to Colliers, the wave of modernization increases, the risk that some commercial properties will become obsolete if they do not adapt to new regulatory and market requirements. Investors, owners, and tenants are currently assessing the actions that must be undertaken to adapt their assets and processes to EU regulations, long-term financial goals, and their own ESG standard commitments.

“We are seeing a clear increase in market activity in building modernization. These changes are driven by ongoing EU actions and national governments, as well as wider social pressure. However, market factors are also very important – including the drive to reduce energy and labor costs,” says Sam Addison, the director of corporate project management in the tenant services department in the EMEA region at Colliers.

“In Poland, up to 70% of buildings are in poor or very poor technical condition. Commencing renovation and modernization planning offers a huge opportunity for savings. Investment in energy efficiency will always be profitable, the question is how fast it will pay back. Given the carbon footprint reporting requirements, applicable to an increasing number of firms, emission and property efficiency have become important building selection parameters, affecting access to financing, or having an impact on its investment potential,” explains Andrzej Gutowski, ESG director, Colliers in Poland.

Return on Investment

Colliers’ analysis indicates that initial costs incurred for modernization investments may, in the long run, result in rental and property value increases. The firm’s experts estimate that if significant energy-saving modifications are made, the average potential property value increase could be 10% by obtaining additional “energy rent,” with no extra costs on the tenant’s side.

Examples of companies already benefiting from proactive renovation strategies in their properties are Bupa, Electrolux, and Manpower Group, whose actions are described in the Colliers report.

Growing Uncertainty

The two main areas of investor interest in property modernization are energy efficiency and reducing carbon dioxide emissions from operational activity. Reducing water consumption and related emissions is next in line. However, Colliers’ study (Global Investor Outlook Survey 2023) also found that there is still considerable uncertainty among investors about the costs and funding sources for in-depth energy renovations.

“Nearly half of investors (44%) still do not know how much energy renovation will cost. It is estimated that it could absorb up to 10% of the value of managed assets, but some believe the costs might be higher. Moreover, those surveyed are uncertain about how to finance such renovations. They may be able to use financial instruments designed for zero-emission investments, such as green bonds, but this will have to be assessed as part of a portfolio audit. It’s essential to do it sooner rather than later since many investors (45%) are planning to dispose of up to 20% of their portfolio within the next five years if assets are deemed ‘non-compliant with ESG standards’,” says Damian Harrington, Head of Research in the EMEA region and Global Capital Markets at Colliers.

How to plan modernization according to Colliers experts

  1. Audit current portfolio to identify areas where significant energy modernization is possible, and buildings whose modernization may not be viable and would require a change of use or disposal.
  2. Consider collaborating with external entities to carry out decarbonization. Working with organizations with specialist ESG knowledge will accelerate progress and targeted results.
  3. Evaluate and identify green financial instruments (such as green bonds) to ensure necessary renovations are carried out to meet tightening regulatory requirements.
  4. Include all capital expenditures in return on investment calculations, including costs of renovation, certification, and financing.
  5. Adjust your investment strategy based on key insights about decarbonization.