(Bloomberg) -- Fund managers overseeing commercial real estate say significant chunks of their portfolios hold assets that can now be considered stranded due to energy requirements being rolled out in Europe.

A study published by Deepki, a data intelligence firm that focuses on energy efficiency, found that more than half of the roughly 250 European commercial real estate portfolio managers surveyed acknowledge that more than 30% of their assets are currently stranded. It referred to its findings as a “time bomb” under the CRE market.

“These are buildings that have lost their value due to poor energy performance,” the authors wrote in their report published on Wednesday.

The asset managers, who oversee a combined €226 billion ($242 billion) in the UK, Germany, France, Spain and Italy, are responding to stricter energy-efficiency requirements that are only now taking effect. The European Union just passed its Energy Performance of Buildings Directive (EPBD), which forms part of a growing array of net zero regulations. 

Banks in the EU are already reacting by setting stricter conditions around commercial real estate financing. BNP Paribas SA, the EU’s largest bank, now targets cuts that may be as deep as 41% of the emissions intensity of its portfolio through 2030. Others, including Banco Santander SA, Barclays Plc, ING Groep NV and NatWest Group Plc, have either already taken — or are exploring — similar measures. 

Vincent Bryant, chief executive of Deepki, said he regularly sees banks raising the cost of borrowing for commercial real estate clients that don’t live up to green energy standards. To manage such risks, banks are increasingly relying on tools such as the Carbon Risk Real Estate Monitor, or CRREM, to screen clients.

Banks are telling clients that if they don’t follow CRREM, interest rates will be as much as 15 basis points higher per year, Bryant said in an interview. Conversely, those that perform well stand to see their borrowing costs go down, he said. 

The development is playing out as the commercial market struggles to right itself after years of turbulence due to higher interest rates and volatile post-pandemic occupancy rates.

Bryant says the Deepki survey indicates that energy-related headaches are likely to grow for property owners. Half the managers surveyed said a further 20% to 40% of their real estate portfolios are at risk of becoming stranded assets in the next three years. What’s more, 94% of those surveyed said they face a “high” risk that their CRE assets will lose value amid stricter green building requirements.

“The level of financial risk faced by organizations was high either in terms of reduced asset value, or from difficulty finding tenants willing to rent properties with sub-standard ESG credentials, which creates longer void periods and vacant buildings,” the study’s authors wrote.

Retail property faces the “greatest risk of stranded assets,” Deepki’s analysis shows. That’s followed by property in the industrial sector, offices, healthcare and residential market, according to the report.

Data gathered by Deepki, which operates in 65 countries and whose clients span pension funds to insurers, asset managers and banks, indicate that managers whose properties aren’t meeting new green standards increasingly risk having to sell at a loss.

“We see daily examples of clients that face additional discounts when they sell an asset,” Bryant said. And that’s “due to the fact that the building is stranded and it comes on top of other issues such as the vacancy or the modernity or the location of the buildings.”

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