By Tom Handford MRICS
Overview
Stranding risk is the risk that a building becomes difficult to let, finance or sell before the end of its expected life because its energy and carbon performance falls behind what regulation, investors and occupiers require. It shows up in commercial terms, through rent, yield, capital expenditure and credit terms, rather than as a technical measure alone.
Three things have moved this from a reporting exercise to a transaction issue. Transition risk now has an established measurement framework in CRREM. Investor reporting through GRESB is placing progressively more weight on measured energy and carbon performance. And valuation and lending practice has caught up, with RICS making the consideration of ESG factors a mandatory part of commercial valuation and lenders pricing energy performance into margin and loan to value.
All three now depend on metered operational consumption rather than modelled ratings, which is where most UK owners are weakest.
What CRREM is and what it measures
The Carbon Risk Real Estate Monitor, CRREM, provides science based decarbonisation pathways for real estate. It is maintained by the independent CRREM Foundation and covers 44 countries.
A CRREM pathway sets the maximum operational greenhouse gas emissions, and separately the maximum energy use intensity, per square metre of floor area for a given property type and country, consistent with limiting warming to 1.5 degrees. An asset is assessed by comparing its actual performance against the pathway for its type and location. The year in which the asset crosses above the pathway is the point at which it is no longer aligned.
CRREM and the Science Based Targets initiative have collaborated on 1.5 degree pathways for in use operational emissions in real estate, which is what links asset level assessment to corporate target setting.
Recent changes to CRREM
Stranding year has been renamed. CRREM has replaced the term stranding year with CRREM misalignment year. The reasoning given is that stranding year implied a level of certainty about future financial outcomes that a science based pathway does not predict. This matters for how findings are worded in reports, valuations and board papers.
The Risk Assessment Tool is being retired. CRREM has announced that the Risk Assessment Tool will be retired on 1 July 2026, with the underlying components reorganised into an open access CRREM Library. The Foundation is refocusing on developing and maintaining the pathways themselves.
The methodology is under review. A global energy use intensity methodology review is under way, with enhanced guidance expected later in 2026 and into 2027.
Alignment with other frameworks. GRESB, CRREM and the Partnership for Carbon Accounting Financials have announced a joint initiative, which points towards more consistent treatment of real estate transition risk across investor reporting and lender emissions accounting.
The practical implication is that CRREM outputs quoted from an older version of the tool, or described using retired terminology, will look dated. Any analysis being used commercially should state which pathway version and which terminology it uses.
Why operational data is now the constraint
CRREM assessment requires actual energy consumption by fuel, by asset, over a defined period, normalised by floor area. It does not work from EPC ratings.
That exposes three common gaps in UK portfolios. Landlord and tenant consumption is often not separately identifiable. Coverage is incomplete, so assessments are run on a partial sample and extrapolated. And data quality is rarely verified by anyone independent, which becomes a problem when the same figures appear in an investor report, a valuation and a loan covenant.
This is where certified operational ratings become useful for more than marketing. A verified operational rating provides a checked, comparable data set for the same consumption that CRREM analysis and GRESB reporting rely on. For UK offices, NABERS UK Energy for Offices ratings are now recognised for the operational energy requirements of the UK Net Zero Carbon Buildings Standard, and Display Energy Certificates continue to provide measured data for public buildings.
GRESB and investor reporting
GRESB is the dominant investor facing benchmark for real estate funds, and the direction of its 2026 Real Estate Standard indicates where investor pressure is heading.
Scoring in the energy like for like change section has been revised so that highly efficient assets can be recognised on absolute efficiency, rather than being penalised for having little year on year improvement left to make.
The weighting of tenant engagement indicators, including green leases and fit out or refurbishment programmes, has increased from 1.5 to 2.5 points each.
Embodied carbon is now fully scored.
A small proportion of operational assets, around 3.1 per cent, must reclassify certain emissions from Scope 3 to Scopes 1 and 2 for 2026 reporting, with no scoring impact in 2026 or 2027.
GRESB has indicated that energy and greenhouse gas performance alone could account for around a quarter of the total score over time.
For an owner, the significance is not the points. It is that funds reporting to GRESB will increasingly need asset level operational data of a quality that can be reported externally, and they will ask managing agents and consultants to produce it.
Valuation
Valuation practice has changed in two steps.
First, the RICS Valuation Global Standards, the Red Book, published in December 2024 and effective from 31 January 2025, made the consideration of ESG factors mandatory. Valuers must record relevant ESG data and consider factors that might affect value, and terms of engagement must set out any requirements relating to significant ESG factors.
Second, RICS published the fourth edition of its global professional standard on ESG and sustainability in commercial property valuation on 28 January 2026, effective from 30 April 2026. It introduces jurisdiction specific sections for the UK, EU and Australia, clarifies that strategic ESG advice is a separate service from valuation, gives practical guidance on when capital and operational expenditure linked to ESG factors may be reflected in a valuation and the limits of the valuer's role, and consolidates a global list of typical ESG related performance indicators.
On the evidence of value itself, the published research relates mainly to certification and EPC bands rather than to operational performance. JLL's analysis of 592 Central London transactions between 2017 and 2021 reported an average rental premium of 11.6 per cent for BREEAM certified offices and capital values 20.6 per cent higher, with a single step EPC improvement associated with a 3.7 per cent capital value premium and a 4.2 per cent rental premium. Knight Frank's analysis of more than 2,700 Central London transactions reported a 12.3 per cent rental premium for BREEAM Outstanding buildings, and has reported that second hand offices rated EPC C and below let at around a 35 per cent discount to prime rents, up from 27 per cent in 2020.
These figures should be quoted with care. They are market research rather than peer reviewed analysis, they are specific to Central London offices in defined periods, and they measure certification and EPC bands, not measured operational performance. No equivalent published UK analysis exists for operational ratings.
Lender expectations
Energy performance now affects credit terms in three ways.
Eligibility. Lenders commonly define a green loan or green mortgage by reference to the underlying property holding an EPC of A or B, which excludes most existing stock from preferential products.
Pricing. Where lenders have historically offered a modest margin discount for qualifying assets, the more common pattern reported in the current market is a margin uplift and a lower maximum loan to value for poorly rated assets.
Portfolio level reporting. Lenders are themselves under pressure to demonstrate the emissions profile of their loan books, which is what the CRREM and PCAF alignment work speaks to. That pushes data requests down to borrowers, including at refinancing.
Market context is documented in the Bayes Business School UK Commercial Real Estate Lending Report, which surveys the lending market twice yearly, and the Bank of England published a staff working paper in January 2026 on product innovation in the UK mortgage market examining green mortgages. Both are better sources for the state of the market than lender marketing material.
Regulatory backdrop
For UK commercial property the significant items are the minimum standards timetable and the reform of the certificate regime.
The government has confirmed EPC B as its long term ambition for larger commercial buildings in England and Wales, has stepped back from an interim EPC C milestone in 2027, and has indicated that any EPC B requirement is likely to apply from 2031. Reform of the Energy Performance of Buildings regime continues, with a partial government response published in March 2026 and further detail expected. Separately, the government has previously indicated a preference for mandatory disclosure of operational energy performance in large offices, which has not been legislated.
The timetable shifting later does not reduce stranding risk. It moves the point at which regulation forces action, while investor, valuation and lending pressure continues on its own schedule.
What owners should do
Establish operational data coverage first. Identify which assets have complete, verified consumption data by fuel, and where the landlord and tenant split can be evidenced.
Run CRREM analysis on the current pathways and state the version used, using misalignment year terminology rather than stranding year, and plan for the retirement of the Risk Assessment Tool on 1 July 2026.
Separate assets that are misaligned because of poor fabric and plant from those that are misaligned because of how they are operated. The second group is usually cheaper to address and can move quickly.
Align the data set used for GRESB, valuation instructions and lender reporting, so that the same asset is not described three different ways.
Consider certified operational ratings for assets where the data will be relied upon externally, so that the figures are independently checked.
Review loan documents and refinancing dates against planned improvement works, since the point of refinancing is where energy performance is most likely to be tested.
Limitations
CRREM pathways are science based benchmarks, not forecasts of financial outcomes. CRREM has changed its own terminology specifically to avoid that implication.
EPC based screening by lenders is a crude proxy for operational performance, and a building can hold a good EPC while consuming heavily in use.
Published value premium research covers certification and EPC bands in specific markets and periods, and should not be presented as a general rule.
Pathway alignment is intensity based, so a change in occupancy or hours of use can alter the result without any change to the building.
