UK pension funds are facing mounting financial risks from poor energy performance across their commercial real estate portfolios, with new research from re:sustain revealing widespread inefficiencies and significant value erosion.

The research, which surveyed European pension fund managers including those operating in the UK, found that more than half (57 per cent) of respondents said between 10 per cent and 30 per cent of their commercial real estate portfolios had poor energy consumption, defined as materially above expected benchmarks for the asset type and location.

A further 31 per cent reported that between 30 per cent and 50 per cent of their portfolios underperformed energy benchmarks, while 8 per cent said that more than half of their assets were poor performers.

The financial consequences of this are already being felt by pension funds, with all respondents confirming they hold “stranded assets” - properties that have seen reduced capital value, leasing potential or liquidity due to poor energy performance.

More than half (54 per cent) said these stranded assets had fallen in value by between 20 per cent and 30 per cent over the past three years, while a further 25 per cent reported declines of between 30 per cent and 40 per cent.

Looking ahead, the outlook remains challenging, with one quarter (25 per cent) of respondents expecting the proportion of stranded assets in their portfolios to increase by between 5 per cent and 10 per cent over the next five years, and 43 per cent anticipating a rise of between 10 per cent and 25 per cent.

Despite these concerns, most pension funds were taking steps to address the issue.

The research found that 92 per cent had plans in place to improve the energy efficiency of their real estate portfolios, with 84 per cent targeting energy consumption reductions of between 10 per cent and 30 per cent over the next three years.

However, UK pension funds, alongside their European peers, faced significant structural barriers.

The complexity of coordinating between landlords and tenants was identified as the most pressing challenge, even ahead of access to capital and rising construction costs.

Securing tenant engagement remained a particular hurdle, with 65 per cent citing difficulties in gaining tenant buy-in and changing tenant behaviour to reduce energy usage.

Meanwhile, 75 per cent said the risk of business disruption to occupiers was significant enough to deter upgrades altogether.

Technology is increasingly being viewed as a key solution, with 73 per cent of respondents identifying remote optimisation tools as having the greatest potential to improve energy efficiency, ahead of more capital-intensive retrofitting measures.

Commenting on the findings, re:sustain, chief business officer, Katie Whipp, said the data demonstrated that poor energy performance was already being reflected in asset valuations.

“Our research highlights that the impact of poor energy performance on real estate assets is no longer a future risk - it is already being priced into asset values,” she warned.

“The findings show that a material share of portfolios are underperforming on energy, which is already translating into value erosion.

For pension funds in particular, this creates a direct challenge to long-term income security and maintaining asset quality over extended holding periods.”

She added that the main constraint was not a lack of intent, but the complexity of implementing changes in live, multi-tenant environments without disrupting income streams, which is accelerating interest in technology-enabled approaches.

“As a result, we are seeing a shift toward technology-enabled solutions that can improve performance quickly, with minimal operational impact - with the ability to optimise assets in use becoming critical to protecting long-term value and ensuring portfolios remain fit for the future.”

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