Climate Neutrality by 2045 and Its Impact on Property Value

Property owners often make decisions regarding building renovations, heating, and on-site power generation separately, instead of integrating them into a unified concept. This increases risks related to financing and market viability. For property owners, managers, and investors, one central question should be paramount: What does a viable, integrated investment pathway to climate neutrality by 2045 look like?

Starting point: Climate Neutrality by 2045/ 2050 is the Target

The existing building stock is currently at the center of climate policy. In Germany, this involves 19.3 million residential buildings, 35 percent of final energy consumption, and 30 percent of carbon dioxide emissions. The European Energy Performance of Buildings Directive (EPBD) from 2024 aims for a fully decarbonized building stock by 2050; Germany, however, is sticking to its even more ambitious national target of 2045.

Consequently, every building now needs a path to climate neutrality by 2045.

Municipal Heat Plans and the Future of Grid-Based Energetic Infrastructures Become an Important Factor

In Germany, municipal heat planning is required by law. The municipal heat plans set the framework for whether a building can be connected to district heating in the future, whether decentralized heating solutions will prevail, and whether gas grids will be phased out or converted to renewable gases.

Thus, the municipality’s plans provide a foundation for individual property strategies A building located in a district heating area has different options than a building in a location where the future of the grid-based infrastructure is unclear.

In other countries where there is no formal municipal heat planning, the availability of grid-based energy supply (e.g., electricity, natural gas, hydrogen, district heating) is equally of paramount importance.

The Market Has Already Priced in These Developments

The financing requirements for future investments in renovation and renewable heating reduce a  property’s current value. The impact on building valuations is already evident: differences in purchase prices based on energy efficiency are already a reality. Properties with poor efficiency ratings are already being sold at a discount.

In the future, investors will focus on whether a property has a credible development path towards climate neutrality:

• Which measures reduce final energy consumption?
• Which heating options are technically and locally feasible?
• Which investments are eligible for subsidies and which can be passed on to tenants?
• What is the valuation for sale, repurposing, or even demolition?

In addition, there remains a high degree of uncertainty regarding future regulations, energy prices, and the development of local energy infrastructures.

Operational Implementation is a Challenge

The European Building Efficiency Directive focuses on improving the worst-performing buildings first. For residential buildings, this translates into targets for the average building stock: a 16 percent reduction in primary energy consumption by 2030 and a 20 to 22 percent reduction by 2035. Fifty-five percent of the savings are to come from the 43 percent of buildings with the worst energy performance.

The implementation of this goal is operationally demanding and can only be achieved through well-coordinated measures involving improvements of energy efficiency, the replacement of heating systems, and on-site electricity generation.

In practice, this means that the main bottleneck is not the availability of technologies, since a wide range of technical solutions including heat pumps, district heating, solar power, building automation, and insulation is available.

The bottleneck lies in the capacity to finance and to implement the individual measures in the correct sequence as part of an integrated, holistic approach.

A Shift in Perspective: From Reactive Maintenance to a Proactive Owner Strategy

Many property owners still think in terms of isolated events: a broken heating system, a roof in need of repair, a change in tenants, or a planned sale. This logic was appropriate under stable conditions. It is not compatible with achieving full climate neutrality by 2045, rising carbon costs, legally restricted heating options, and investors’ and banks’ ESG requirements.

A different understanding of the owner’s role is needed. Property owners do not have to become energy experts. However, they must simultaneously consider and integrate technical options, tenancy law, subsidies, debt service, and marketability.

Strategic Guidance

• Every building requires a pathway to climate neutrality in 2045. This pathway includes renovation measures, heating options, on-site power generation, eligibility for subsidies, capital requirements, and scenarios for future development or phase-out.
• For every property acquisition, future capital requirements for achieving the building’s climate neutrality must be identified and explicitly factored into the purchase price.
• Property portfolios should also be prioritized based on their sustainability rating. Urgent decisions concern properties with low energy efficiency, short remaining service life of technical systems, uncertain grid infrastructures, and high operating costs.
• Constant changes in legislation and in relevant cost factors (e.g., CO2 certificates, energy prices) create significant planning uncertainty. Decisions must therefore be reviewed regularly, at least annually.

Theron assists property owners, property managers and asset managers in assessing the need for action regarding buildings and building portfolios, in preparing and prioritizing decisions, and in developing a framework for effective action plans.

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