“For now, ESG proponents would do well to demonstrate the “return on investment”, adds another real estate head. “It’s going to make sense where it makes the operations of a building cheaper and limits its environmental risks”, plus “some tenants just want to be in a greener building”. Equally, “rents must reflect whether you’re in a ‘brown’ or a ‘green’ building” – eventually – even if market rates are not fully pricing that in today.”PWC - ULI Emerging Trends Global Report 2025
Sustainability in real estate is nothing new, and while it’s a centre focus for much of the industry, the realities of keeping up with tightening regulations amid a market just recovering from a volatile period are not getting any easier. The latest ULI Emerging Trends Global Report 2025 reveals a market caught between two competing forces: the rise of green-certified, climate-conscious real estate and the deep discounts on underperforming, outdated properties, so-called “brown” buildings. Investors, Asset Managers, and Operators now face a choice: double down on sustainable new builds or capitalise on the markdowns of less efficient stock. But in which strategy does the value lie?
The Green Premium: Is It Worth the Price?
Sustainable buildings continue to command a “green premium” in rental and sales markets. In fact, 32% of European investors are willing to pay premiums for “ESG friendly” assets. More than half of them are willing to pay in excess of 20%. (CBRE) Sustainable building features are not just a branding exercise; they are becoming a financial necessity as certain jurisdictions are tightening regulations, making it difficult for companies to operate from inefficient, high-emission spaces, and institutional investors look to avoid the strain of running inefficient assets.
Green buildings often benefit from lower operating costs, thanks to reduced energy and water consumption. In a high-inflation environment where utilities are becoming a heavier financial burden, these efficiencies matter. It appears that investors remain keen on “build-to-green” developments, especially in Europe where regulatory demand is creating favourable market conditions.
Beyond operational savings, green-certified buildings also unlock financial incentives and competitive financing options. Read our value proposition on accessing the best finance with Utopi for more on how Utopi can support you in accessing green funding under SFDR Article 8 and 9, reduce cap rates, and secure sustainability-linked loans.
The “Brown Discount”: A Short-Term Opportunity or a Long-Term Liability?
On the flip side, brown buildings are increasingly being sold at a discount. Capital is already shifting towards value-add strategies, with some opportunistic investors seeing potential in acquiring and retrofitting these properties. The logic here is clear: if you buy a building at a significant markdown and invest in sustainability upgrades, you could theoretically bridge the gap and create a high-value asset at a fraction of the price of a new green build.
However, this approach comes with significant risks. Firstly, not all brown buildings are viable for retrofitting. Some are so fundamentally inefficient that they will struggle to meet future energy regulations without prohibitively expensive interventions.
In certain cases, these properties may become stranded assets. Read more on how Utopi assisted a student accommodation investor facing a poor valuation due to an incorrect assessment of their heating systems. By leveraging real-time ESG data from Utopi, the investor successfully protected asset value and avoided unnecessary retrofits. The importance of data-driven decision-making in asset valuation cannot be understated.
Lenders and institutional investors are also becoming more cautious about funding brown assets, even with a planned retrofit, and buildings that don’t align with ESG frameworks may struggle to secure competitive funding.
“ESG is now “a politically charged acronym. But real estate leaders want to see the industry get back to basics: focus on the financial upside of paying attention to matters of energy and the environment, and demonstrate a return on investment.”PWC - ULI Emerging Trends Global Report 2025
The Policy Factor.
One of the most decisive factors in the green vs. brown debate is the rapidly evolving regulatory landscape. The European Union’s SFDR is a familiar name by now, requiring asset managers to disclose their ESG policies and how these are integrated into their investment decisions. Utopi solutions, and the data they produce, can curate real-world insights to showcase ESG alignment and positive sustainable prioritisation. Giving Fund and Asset Managers access to the essential data they need to gain access to these SFDR funds and loans.
SFDR article 8 sustainability indicators include:
- Carbon footprint
- Energy consumption
- Emissions to water
- Water ratios
- Fossil Fuel Exposure through Assets
Utopi collects granular data across 6 Environmental Data Points & provides Comprehensive Utilities Metering. Learn more about how Utopi can support your regulatory compliance.
A Hybrid Approach?
A binary green vs. brown approach may be overly simplistic. The most effective portfolio strategy may involve a hybrid model, balancing new green developments with selective brown-to-green transformations.
For this to succeed, Investors must embrace new technology within retrofit solutions. Utopi’s smart IoT devices provide real-time ESG insights, offering a clear diagnostic context for utility consumption. This data-driven approach supports significant improvements in energy efficiency, waste management, and void management, leading to cost and emissions reductions of up to 20-30%. With Multisensors that can be installed in just five minutes, the common barriers to retrofitting are eliminated, making sustainability upgrades more accessible and cost-effective for Investors. Read more about how we support retrofits here.
Leveraging real-time ESG data and asset performance analytics have seen one of our clients access a CBRE verified 9x ROI, with Harrison Street accessing a £17 million uplift in total asset value after sustainability-driven enhancements. This demonstrates that the right sustainability upgrades can transform struggling assets into high-performing, resilient investments.
The Cost of Standing Still.
The decision between investing in green buildings or capitalising on brown discounts is not just about CapEx, it’s about long-term viability. The financial risks of ignoring sustainability are increasing. Regulations are tightening, investor demand for ESG features is increasing, and brown discounts may not remain bargains for long as retrofit becomes increasingly accessible.
For investors looking to future-proof their portfolios, the smartest play is not just to react to market trends, but to prepare for where they may be going. While brown buildings can offer short-term opportunities, sustainability is becoming the defining metric of real estate value. The question is not whether green investment is necessary, it is how quickly the market will adapt to that reality.
For further insights into emerging trends in real estate and sustainability, and how Utopi can help you keep up, see our reports.