Former central banker Mark Carney has warned there will be “significant stranded assets” in commercial real estate as governments push to reach net zero, highlighting the risks to property owners and lenders from older buildings that cannot adapt.

Property investors are facing a double whammy from the sharp fall in asset values caused by higher interest rates, and increasingly urgent demands to invest in energy efficiency.

Stranded assets are often associated with fossil fuels that will be phased out through the green transition, but Carney underscored that there are also older buildings that “aren’t going to make it” as countries regulate to cut greenhouse gas emissions across all sectors.

“There will be a tail of stranded assets . . . which are going to have to turn over and be refurbished if possible or knocked down and repurposed,” he said.

This week we asked business leaders and politicians if net zero will result in a significant number of stranded commercial property assets.

Michael O’Leary, Ryanair chief executive

Michael O’Leary: ‘There is a move away from this whole net zero’

“I don’t think so. I think there is a move away from this whole net zero. I think increasing if you look across Europe, politicians, elections are moving away from net zero.

“I think everybody’s conscious that we do need to kind of decarbonise, that we do need to reduce our impact on the environment. But these arbitrary targets of net zero by 2030, or net zero by 2050, nobody’s going to get anywhere close.

“The Germans were importing Russian natural gas, they’re now burning coal and lignite again. If you really want to get to net zero, we should open nuclear power plants here. But Ireland passed a law 20 years ago banning nuclear power based on what?

“So, there’s a lot of kind of stupidity, but I think it’s why the Greens are doing so badly in elections all across Europe. They got wiped out in the European elections, they got wiped out in the Austrian elections.

“They would get wiped out in the Irish elections, I’m fairly confident, if they take place in November, because people don’t want to be lectured by a bunch of pious individuals who are capable, but who have no idea how to implement day-to-day policy.”

Matt Soffair, senior research manager for Legal & General’s asset management division

“Real assets, such as infrastructure and real estate, can become stranded due to functional, physical, and regulatory factors, leading to increased capital expenditure, reduced income growth, and lower performance. ESG factors, especially climate risk, will accelerate this, leaving non-compliant assets stranded and potentially illiquid.

“Assets within the built environment are particularly vulnerable due to their contribution to global emissions and stringent regulatory standards; physical climate risks, such as extreme weather, and changes in insurance coverage for exposed areas further heighten this risk.

“While climate-related stranded assets may seem like a future issue, we are already seeing ESG factors materially influence performance, both positively and negatively.

“Proactively managing ESG risks is key to mitigating these challenges and can even offer value creation. Assets with strong sustainability credentials are commanding rental and capital value premiums, particularly as real assets are relatively early on in the process of transitioning, providing the opportunity to benefit from a scarcity premium associated with net zero or net zero-enabled stock.

“In addition, there is a huge opportunity to create new assets that align with the energy transition, be it renewable energy or natural capital, which we expect to become a larger part of institutional investors’ portfolios. We believe early adopters are likely to deliver enhanced investment outcomes over a long-term investment horizon, whilst also actively contributing to the decarbonisation of our economies.”

Eamon Ryan, minister for environment, climate and communications

Eamon Ryan: ‘How do you protect historic buildings like in Georgian Dublin, which can’t be retrofitted?’

“Mark Carney’s always been a real champion in climate action. He’s always been identifying correctly the risk to financial assets, as he has done here for buildings that need to reach better clean energy ratings. But outside of private investments in retrofitting commercial buildings, I think there are two solutions.

“The first is for improving the energy ratings of public buildings through public investment, and then for some difficult to retrofit historic commercial buildings, you use district heating solutions. That’s the way to go.

“We want to use €3.15 billion from the Climate and Infrastructure fund from 2026 onwards to invest in a couple of these areas.

“Under European law, we know that 3 per cent of public buildings each year have to be retrofitted. At that rate, over a 20-year time frame, that will in theory protect most public buildings from Mark Carney’s concerns.

“We have recommended the allocation of €1.2 billion from the climate and nature fund to be match funded with capital from each line department so that we can deliver on that target.

“Then, how do you how do you protect historic buildings like in Georgian Dublin, which can’t be retrofitted, and allow them to be part of the low-carbon transition? I believe it’s through district heating.

“The advantage of district heating is in the likes of Dublin City, where there’s really huge amount of waste heat being pumped out into the Liffey from the Poolbeg incinerator, and then historic districts with buildings that are difficult to retrofit. We already have pipelines to carry that waste heat to buildings which along the quays, and they could be extended to the city centre.

“In our climate plans, we have a target of 0.7 terawatt hours of district heating by 2030. We will therefore also provide grant funding to support the rollout of district heating from the climate fund.”

Neil Bannon, co-founder and executive chairman, Bannon Commercial

Neil Bannon, executive chairman Bannon Commercial: ‘Will they be as concerned about suburban locations or remote locations?’

“I don’t see obsolescence happening in prime city centre locations. Because the values will support the costs required to convert them to a sustainability standard demanded by the market.

“But in locations where the values of offices are lower, they’ll struggle to absorb the same level of investment required. Because the cost of fixing a building will cost the same in a low-value location as a high-value location. So I think there’s a risk of viability obsolescence.

“If you’ve got to get to net zero, you can’t set the regulations lower so you’ve got to have some sort of grant or subvention to bridge the gap. If it’s financial obsolescence because the market values don’t support it, then it’s only through tax and grants that you can bridge that.

“The question for policymakers will be: do they want to do that? I understand the motivation to do that in city centres, because you need city centres to be vibrant. So you’d be very wary if large parts of your city centre office blocks becoming obsolete, because then you lose the jobs in the city centre and the vibrancy.

“Will they be as concerned about suburban locations or remote locations? I’m not sure they will. Traditionally, policymakers in Ireland like offices because offices mean jobs, and jobs are good.

“If we start seeing jobs leave locations because we’ve nowhere to accommodate them, then that’s when policymakers might start paying more attention.”