Fidelity launches brown-to-green real estate fund

The asset manager is seeking to turn Western European assets into sustainable office space, and has already made its first investment from the fund.

Fidelity International, the $729 billion manager, has launched an impact fund targeting real estate assets with refurbishment potential, according to a statement.

Fidelity European Real Estate Climate Impact Fund was launched in August with a mandate to invest in Western European commercial assets that can be refurbished into sustainable workspace. The firm declined to comment on fundraising.

Fidelity made the first investment from the fund this week when it purchased 88,000 square feet of office space in central London. The firm plans to refurbish the property “in line with net zero targets”. The refurbished office will be “BREEAM Excellent, EPC A, Nabers Five Star and Wiredscore Platinum”, according to the release.

“Turning brown to green also presents a significant investment opportunity as there is currently a chronic undersupply of net-zero carbon space versus occupier demand, resulting in a green premium,” European real estate head Neil Cable said. “This structural mismatch will erode over time but we believe the next five to seven years represent a rare opportunity to deliver disproportionate returns for carefully managed development risk”.

“The focus of refurbishments will be on delivering an accelerated net-zero carbon pathway on each asset,” the press release states. “Uplifts in capital value are expected to be achieved through an increase in expected rental value and through investor demand for sustainable assets. Assets are expected to be held for three to five years.”

The fund has been classified as Article 9 under the EU’s Sustainable Finance Disclosure Regulation. Mangers launching real estate strategies have often been reluctant to adopt the classification, due to its perceived incompatibility with brown-to-green strategies.