Real estate is the largest contributor to climate change, with 30% of global carbon emissions, 40% of the world’s energy consumption and 40% of the world’s resources being used in buildings. Climate change is an inconvenient truth that business needs to address and the property industry is beginning to embrace this reality.
Starting my life in mid-1980s France makes me an older Millennial. My native country has been teaching children about environmental health and the basic concept of climate change for the last 25 years. As a consequence, the new generation has a deeply rooted state of environmental consciousness. They are deadly serious about saving the planet for themselves and future generations.
Younger people are opting to work and live in an eco-friendly way. Developers and asset managers cannot ignore this millennial point of view if they want their business to continue to thrive and survive.
There’s also a point to be made about the ecological and economic cost of inaction – estimated at $23tn (£18tn) a year if carbon emissions are not cut. In 2017, climate-related weather events cost insurance companies $306bn in the US alone – a number that will continue to rise year-on-year as the frequency of extreme weather events increases.
The growth of the property sector has been fuelled by the dramatic growth of urbanisation. Together with demographic changes, experts at the United Nations predict that 68% of the global population will live in urban areas by 2050. That’s 2.5bn more people than today.
More people, less resources and larger cities means a concerted effort will be needed to create a more liveable, resilient, inclusive, and sustainable environment for future generations. A new approach will ensure that true long-term profitability is achieved. For property investors, the sooner they embark on the sustainability journey, the better for their bottom line.
Here are nine ways the industry can take their sustainability goals to the next level:
1. Reduce operational costs and your footprint
Green buildings, on average, reduce overall operational costs by up to 9%, which benefits the tenants, improves energy and water systems, as well as incorporating standards for durability and ease of maintenance.
2. Increase the value of your portfolios
Certified green buildings typically are more attractive than conventional buildings. This translates into an approximate 21% premium on transaction prices, and 18% on rent. Making properties more attractive for tenants also ensures a higher occupancy rate – 5-7% increase in the case of offices – allowing owners to extract more value from their assets.
The added cost of certification in a building’s construction is of relatively minor significance. The added cost of attaining a BREEAM Excellent level of certification ranges from 2-7% compared to conventional equivalents.
3. Develop long-term relationships with tenants
The length and quality of leases are key value drivers in the property industry. At Longevity, we help our clients develop tenant-landlord relationships and increase retention by engaging tenants in sustainability discussions to better target their current and future needs and assist them in reducing their ecological impact.
4. Increase productivity and save money
The criteria imposed by Green Building certifications put a heavy emphasis on health and wellbeing. Measures such as enhanced air quality, lighting, and amenities contribute to the overall happiness and minimise absenteeism – which costs the UK £100bn every year. A greener workplace has historically resulted in an increase of 8-11% productivity compared to conventional equivalents.
5. Upgrade internal monitoring processes and knowledge
Buildings respecting the certification requirements need to implement advanced monitoring systems and strategies. This reduces the risk of underperforming aspects of the building becoming a tangible liability with time.
Improving internal monitoring also allows asset managers to keep a close eye on any form of degradation, minimising the cost and frequency of replacements or unplanned maintenance works.
6. Anticipate legislative changes
With ever-changing environmental regulation, respecting green building standards ensures avoidance of unexpected capital expenditure in investment cycles.
Recently, this was an issue in the UK when significant expenses were incurred by the implementation of the Minimum Energy Efficiency Standard (MEES), which made it unlawful to rent property not meeting the baseline.
7. Get buildings certified by a third party
Green-building certifications require third-party authentication to ensure maximum accountability. This guarantees that improvements implemented in the green building framework are both reliable and effective, contributing to the overall credibility of the certification, and supporting management’s commitment to achieve the highest level of environmental sustainability.
8. Take a portfolio approach
Green building certifications such as BREEAM offer the option to assess portfolio-wide operational efficiency using a standardised international system. This is used as a portfolio management tool to identify underperforming assets and to prioritise the most rewarding sustainability improvements.
9. Access to capital is harder without environmental certification
The real estate sector has seen a major rise in the number of certified properties. In 2017, it was reported that in 10 cities in Australia, Canada, and Europe, a total of 18.6% of residential and commercial space had been certified as “green”. This was three times the 6.4% recorded 10 years earlier.
This increase is mainly due to the huge push from pension funds to invest their money sustainably, imposing high certification levels to their investment partners.
Étienne Cadestin is founder and UK managing director of sustainability consultancy Longevity Partners
