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February 14, 2024

Cromwell’s European Market Monitor – Q1 2024

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers ECB rates, credit standards and rate decline indicators.

View the full report here.

Cromwell releases full scope 3 inventory, sets short and long-term emission reduction targets

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Real estate investor and fund manager Cromwell Property Group (ASX:CMW) has today released for the first time its full scope 3 emissions inventory, becoming one of the few Australian commercial property organisations to publish its emissions footprint across 100% of its global network and supply chain.

The inventory release covers all Cromwell scope 3 emissions across upstream and downstream activities, covering its entire supply chain of tenant activities; funds under management; joint ventures; and embodied carbon sources. It goes further than general sector reporting practices, where disclosure is often limited to scope 3 emissions where a company possesses operational control.

Alongside the disclosure of its scope 3 emissions inventory, Cromwell has today also released new short and long-term emission reduction targets which will help underpin future decarbonisation efforts.

This includes a net zero target across Cromwell’s entire portfolio for scope 1, 2, and 3 emissions by 2045, which includes tenant emissions and embodied carbon. In addition, Cromwell has also set a short-term target of a 42% reduction in scope 1, 2 and 3 emissions by 2030, along with a net zero target for new developments by 2030 and 2035 for all assets under Cromwell’s operational control.

Group Head of ESG, Lara Young, said: “Developing a full scope 3 inventory provides us with an accurate and meaningful picture of all emissions across our supply chain for the first time. It enables us to make more informed investment decisions on decarbonisation activities, working with our partners.

“Specifically, we have now shifted our focus to asset-level decarbonisation. In the last year, we have started to undertake assessments at specific sites to identify emissions sources and create bespoke plans to reduce these emissions, which we will do working in partnership with our service providers. We’ll continue this process going forward.”

Case studies

Cromwell has recorded positive progress across its current decarbonisation and emissions reduction activities, with scope 1 and 2 emissions reducing by 44% since FY22 and a 19% reduction across scope 1, 2, and 3 emissions since FY22. Examples of initiatives include:

  • The large-scale electrification upgrade of the 24-storey McKell Building, converting the existing commercial gas-fired heating system to an electric heat recovery reverse cycle heating, ventilation, and air conditioning (HVAC) system. This was a first of its size for the Sydney CBD and will achieve a 5% reduction in total building electricity consumption.
  • Cromwell’s solar programme which now includes 502kw of solar installation in Australia, which has reduced annual emissions by 538tCO2e, or up to 52% at each site. Cromwell is planning an additional five solar projects in Australia and three in Europe in FY24 to further reduce emissions.
  • Investing in sustainable technology and materials, including the refurbishment of CEREIT Nervesa 21 in Italy, where innovative and low-carbon glass was used instead of standard glass, which helped to record a significant reduction in the building’s embodied emissions.

ESG Report

The information above has been released today as part of Cromwell’s FY23 ESG Report. The full report can be found here.
In summary, the ESG Report highlights Cromwell’s long-term targets which include:

  • Achieve net zero operational emissions (scope 1 & 2) by 2035.
  • Achieve net zero operational emissions for the entire portfolio (scopes 1, 2, & 3) including tenant and embodied carbon by 2045.
  • Significantly reduce our gender pay gap year on year.
  • Achieve 40:40:20 workplace gender diversity at all levels.
  • Integrate ESG into risk registers and business strategy, including objectives and key results.

“Cromwell recognises the challenges that the property industry faces; however, we also recognise the opportunity to deliver tangible positive impacts. The Group has a global in-house ESG team and dedicated Australian and European teams that support all Cromwell activities,” said Ms. Young.

Cromwell reorganises European operations

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Real estate investor and fund manager Cromwell Property Group (ASX:CMW) (Cromwell or Group) today announced the reorganisation of its European operations to be more aligned with its investors’ strategies, and to improve efficiency in the current challenging market environment.

The reorganisation involves the creation of a regional structure comprising two European regions, which will be headed by Pontus Flemme Gärdsell for Northern Europe, and by Michael Bohde for Southern Europe, both reporting directly to Andy Creighton, Head of Investment Management, Europe. These two regions will replace the former structure, where each country had its own country head.

Pontus will be responsible for managing Cromwell’s investment and asset management activities in the Nordics, the Netherlands, the UK and CEE while Michael will be responsible for managing Germany, France and Italy.

Commenting on the changes, Pertti Vanhanen, Managing Director, Europe at Cromwell Property Group, said: “By streamlining our European business, we will be able to provide a greater focus on the countries our investors are showing most interest in. It will also enable us to improve operational efficiencies in the current challenging macro-economic environment, providing our clients with more integrated cross-border investment and asset management services”.

In the past 18 months, Cromwell has been active across Europe and the UK servicing longstanding mandates with clients such as CEREIT, the Singapore-listed REIT, as well as several new international mandates and marketing new strategies to investors.

Vanhanen, added: “Since the onset of higher interest rates, the market has changed significantly as investors and managers adjust strategies to cope with the higher cost of finance and structural changes impacting the sector. Foremost among these are how we improve the sustainability and carbon footprint of real estate assets and how we reposition buildings in sectors like offices where behaviours have changed”.

Cromwell has made significant progress in these areas, implementing a sustainable finance framework to support the transition to more sustainable borrowing across its portfolio and is currently premarketing a value-add office repositioning strategy in the UK.

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November 7, 2023

Cromwell’s European Market Monitor – Q4 2023

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers ECB rates, credit standards and rate decline indicators.

View the full report here.


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August 18, 2023

ESG and Investment Strategy: a virtuous relationship

Environmental, social and governance (ESG) is a high priority for real estate investors, but there is no agreed industry position on what ESG means in practice for investment strategy. In Cromwell’s latest analysis, Tom Duncan and the team review the ESG landscape and provide strategy-related advice on macro-sector allocations through asset selection and management to occupier profile.

View the full report here.


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August 18, 2023

Cromwell’s European Market Monitor – Q3 2023

Market Monitor gives our views on the latest data and trends from the financial markets and their impact on commercial real estate. The latest one covers tightening credit standards, bank liquidity and green financing.

View the full report here.


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August 3, 2023

Greenwashing: transparency is everything

Many companies have publicly declared their environmental, social and governance (ESG) strategies to formalise a commitment to net zero and align to the UN’s sustainable development goals. However, if these strategies are not backed up by solid, auditable data and acted upon in a meaningful way, then they are pointless. Making empty or misleading statements about the sustainability of a company’s products or services, whether intentional or not, is known as greenwashing.

Our latest briefing note looks closely at what greenwashing within real estate looks like in its many forms, and the steps businesses need to take to avoid significant reputational damage.

The full research briefing note can be found by clicking here.


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March 15, 2023

Timber buildings – Cost-competitive sustainable real estate

In 2022 we released our report on timber construction titled “Timber Buildings – Truly sustainable real estate”. This demonstrated the many benefits of construction using mass timber (short for massive timber) when compared to traditional steel and concrete.

To recap, the benefits of using mass timber include:

  • Energy efficiency: manufacturing mass timber materials uses significantly less energy than steel and concrete production;
  • Faster construction: prefabricated timber panels enable shorter construction timetables than building with steel and concrete thereby reducing construction-based emissions;
  • Less disruptive: fewer delivering trucks are needed resulting in less disruption to communities around building sites;
  • Resistant: mass timber is fire-resistant and avoids moisture damage when built correctly; and
  • Financially attractive: rising occupier demand for greener buildings led to a 9% rental premium for timber buildings.

This report seeks to look more closely at the amount of carbon reduction during the building development and lifecycle. It also explores how the cost implications of timber buildings compare to steel and concrete.

The full report can be found by clicking here.


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February 15, 2023

Polish appeal: Europe’s most dynamic country should be a focus for savvy investors

Poland’s performance prospects are compelling. In our view it is being unfairly discounted by investors due to its proximity to Ukraine. We also believe that it is set for sustained occupier demand growth due to the strength of long-term fundamentals related to economic growth and demographics. A combination of rising occupier demand increasing rental potential, a lack of space suitable for modern businesses and a flawed perception of risk creates a powerful impetus for savvy investors to seize the chance today to acquire good quality real estate and benefit from superior performance tomorrow.

In the first article of this series, we explore why Polish investment prospects are so compelling. In future articles we will examine the performance opportunities presented by individual real estate sectors.

Risk perception: Extreme caution towards Poland is misplaced

International investors have shunned Poland since the Ukraine invasion given its proximity to the conflict and its high associated risk perception. Polish real estate investment volumes in H2 2022 were 35% down on the five-year average according to RCA (figure 1). Polish prime yields have moved out between 50-90 bps over the last year and it remains one of the highest-yielding European markets (figure 2).



Logical reasoning implies that this heightened risk perception is misplaced. Indeed, far from being an inhibitor of future performance, proximity to Ukraine is likely to be an accelerator of it.

Our baseline assumption is there will not be a horizontal escalation of the Ukraine conflict in which Poland is invaded. Given Russia’s battlefield setbacks, their inability to retain territorial gains and the assertive, unified position of NATO and the EU towards Russian aggression, we believe such escalation is highly unlikely. If such an escalation did eventuate, we would all have far more to worry about than real estate values in any case. In the medium-term (the next five years), we also assume that the conflict reaches a settled state and active combat ends. Accepting that, let’s turn to the real estate fundamentals.


Economics and demographics: Dynamism in leading occupier demand indicators

According to Oxford Economics, Poland will benefit from some of the strongest economic growth in Europe over the next five years (figure 3). Because such growth is a leading indicator of occupier demand, this bodes well for real estate performance. However, we believe that even these bullish growth assumptions may be too pessimistic as they fail to account for the full impact of Poland’s post-war relationship with Ukraine.


Poland has been a hub for shipping arms and aid to Ukraine over the last year. Post-war, it will be the conduit through which the reconstruction effort is funnelled. Given the damage Russia has inflicted – the reconstruction costs are estimated by the World Bank amount to €322 billion so far – that effort will be significant. There is talk of a new Marshall Plan, the American programme that turbo-charged Europe’s economic recovery after the second world war. Poland’s leading role in the reconstruction effort will be solidified by the international creditability it has gained by virtue of its resolute response to the invasion. This will translate into far greater foreign direct investment (FDI) from international capital once the risk perception declines.

Poland has been a haven for Ukrainian refugees, with 7.5 million fleeing across the border according to the European Investment Bank. Some 1.5 million are estimated to remain there today, many of whom are likely to settle permanently. The presence of so many additional people has caused some immediate tensions by exacerbating pressure on housing and social infrastructure. Short-term challenges aside, these immigrants will inject dynamism into Poland’s demographic profile by adding labour and population. The new arrivals tend to be younger and better educated than the average Pole. It will be an attractive destination for corporate occupiers seeking to tap that plentiful, affordable supply of skilled labour.

Current forecasts do not, in our view, fully account for the additional economic and demographic growth impetus associated with these factors which will directly translate into stronger real estate demand.


Conclusion: Unwarranted risk and solid fundamentals make Polish real estate an investment gem

In summary, we believe that the Ukraine-related risk of Polish real estate investment is over-estimated. We also consider that economic and demographic growth drivers will stimulate sustained occupier demand in the medium-term and long-term. Investors who access the market now can secure assets and development sites aligned to future demand and associated rental growth at higher yields than will be available once the Russian-Ukraine conflict settles. Exposure to capital and income growth potential will, if executed correctly, deliver out-performance. That is why we are so optimistic on Polish real estate.

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October 11, 2022

The impact of rising interest rates on real estate yields

Alex Dunn, Research Manager, Cromwell Property Group

Interest rates tell you how high the cost of borrowing is, or how high the rewards are for saving. So, if you are a borrower, the interest rate is the amount you are charged for borrowing money, shown as a percentage of the total amount of the loan. In 2022, interest rates have risen across Australia, Europe and the US.

The relationship between interest rates and real estate yields is important for investors to understand, given the potential impact of the former on the latter.

While we believe that recent interest rate increase will place upwards pressure on real estate yields, our research implies that other real estate fundamentals are also important, and theses will limit the extent of yield softening.

Statistically, our analysis shows there is a very close relationship between 10-year government bonds and real estate yields.

Government Bonds: Closely correlated with real estate yields

Government bonds are viewed as proxy for the ‘risk-free rate’, which is the theoretical rate of return for an investment that has no risk of financial loss. An increase in interest rates encourages saving and deters borrowing and in so doing raises the required rate of return for real estate investment.

In figure 1, we compare Eurozone government bonds to prime Eurozone office yields. A score of 1 means two variables are perfectly correlated, meaning they move in unison. A correlation of 0 means there is no relationship between them. The correlation between Eurozone government bonds and prime office yields over this period is 0.89. This implies a strong relationship and the long downward trend in real estate yields since 2001 is heavily linked to the fall in interest rates.



Although there is a strong correlation between the two variables, the magnitude of moves in real estate yields and bond yields has differed significantly over the past two decades. Figure 2 shows that real estate yields fell by an average of 280bp across major European markets from peak to trough, while bond yields reduced by 495bp over the same period. This suggests that real estate yield movements, although in line with bond yields, are far less volatile and are subject to other forces.

Figure 3 shows the spread between prime UK office yields and 10-year government bonds, and we have used data from the UK office market due its stable history. The spread at the end of 2021 was around 476bps, compared to the long-term average of 306bps. While there is no mathematical rule to indicate the spread which can trigger repricing, we believe the bond yield must first rise to reduce the spread to levels comparable with the long-term average before exerting direct upwards pressure on real estate yields.


Figure 2 also shows that since 1992, there are two periods where the spread between UK prime office yields and 10-year government bonds significantly reduced: between 1993-7, and 2005-8. In both periods the UK was experiencing inflation above the Bank of England (BoE) target of 2%. This suggests that investors are willing to accept a lower spread between real estate yields and government bonds in periods of high inflation due to the perception that real estate is an inflationary hedge.

The Spread: What other factors impact capital values?

The volatility in the real estate-bond yield spread suggests the complex influence of several factors playing a role in affecting real estate yields. These include capital markets, macroeconomic variables, and real estate fundamentals.

The spread is related to the expectations around rental and capital value growth, which in turn are related to the supply/demand dynamics of a particular market. If demand for real estate from investors and/or occupiers is high relative to supply, then there will be a downward yield pressure. Where supply is high, for example due to a wave of development completions or occupier bankruptcies, this would exert upward yield pressure.

Despite the disruption brought on by the pandemic, many markets in both the office and logistics sector are undersupplied with available space. Figure 4 shows how the vacancy rates across European office and logistics and industrial properties are significantly below the levels witnessed in the aftermath of the GFC.


A combination of rising construction costs and economic uncertainty has also impacted the development pipeline for both the office and logistics sector. The lack of new stock being brought to the market will exacerbate the current supply/demand dynamics and cause faster prime rental growth.

Debt financing availability has also risen over the last decade due to greater availability of non-bank lenders. This will help maintain yields more than has been done in the past when interest rates rise.

Companies are also in a much healthier position today than they were during the GFC. Figure 5 shows the average loan to value ratio across Europe which has declined from a high of 58% in 2009 to 35% at the end of Q2 2022. As such companies should be better able to protect the downside during a weaker economic environment and, crucially for real estate investors, continue to pay their rent.


The weight of capital targeting real estate across Europe has doubled over the last ten years due to both greater desire for real estate exposure amongst historic investors and new entrants to the market such as sovereign wealth funds.

The significant weight of capital was reflected in the investment volume during the first half of 2022 which totalled €143bn according to RCA. This was the largest transaction volume recorded in H1, and also makes Q2 2022 the second highest rolling 12-month period on record, reflecting investors strong desire to put their money into real estate.

Conclusion: Interest rates are important but not the only factor

The combination of positive rental growth expectations brought on by encouraging supply/demand dynamics, the versatility in the debt markets, and sheer amount of money allocated towards real estate suggests that the spread between 10-year government bonds and real estate yields will be lower in the future. This would therefore reduce the rate of yield softening brought on by rising interest rates. Although we have used data on the European real estate market to explore this topic, the same trends permeate all western markets, and the implications are likely to be the same.