Occupier and investor demand for sustainable commercial property in the UK has risen over the past 12 months but this growth has not kept pace with the rest of Europe, a new report has found.
The RICS Sustainability Report 2022 collated sentiment from almost 4,000 chartered surveyor contributors, around 1,200 of which are from the UK, across commercial and construction sectors globally.
In the UK, around 65% of contributors reported that occupier demand for green/sustainable buildings has risen over the past 12 months. However, Europe is leading the way with around 52% of contributors across the region as a whole seeing a modest increase in demand, and close to a further quarter stating that occupier interest in green/sustainable buildings has increased significantly.
On the investment side, around 45% of survey contributors in the UK reported a modest increase in investor appetite for green/sustainable buildings, which is 5% higher than the global average. A further 21% suggested there has been a more significant increase in demand. But again, the pick-up in demand is stronger in Europe, with around 80% of those surveyed across the whole of Europe seeing an increase in investor demand for green/sustainable real estate in the past year.
The RICS said the figures suggest Europe is seeing stronger progress on sustainability in the built environment due to the spotlight being turned on green buildings by the European Commission’s ambitious Green Deal, announced in December 2019. This is a package of policy initiatives aimed at setting the EU on the path to a green transition, with the ultimate goal of reaching climate neutrality by 2050. The report suggests that policymakers in other regions turning their attention towards sustainable real estate will lead to market shifts elsewhere.
Contributors to the RICS survey were also quizzed on the impact of growing demand for sustainable buildings on both rents and prices. A significant share reported a market premium for sustainable buildings and a “brown discount” for non-green real estate assets.
In the UK, 48% of respondents noted a reduction in rents, and around half also cited a reduction in sale prices for non-green buildings. For Europe as a whole, 57% of respondents noted a “brown discount” for rental properties, and 60% noted a “brown discount” on prices.
The majority of UK respondents (55%) noted a rise in climate risk assessments by investors on their built assets, suggesting that climate issues are now rising up the agenda and could be influencing the behaviour of key market players. Again, Europe as a whole showed a stronger increase.
Construction
The data shows there has been little or no change in some important areas in the past 12 months. In construction, a significant share of professionals said they do not measure carbon emissions on projects.
Survey respondents reported that construction professionals in the UK are beginning to embrace digital tools and technologies to complete sustainability-related analysis for construction projects, predominantly to assess energy needs and costs. However, they are less likely to use these tools to reduce embodied carbon or to measure the impact on biodiversity. Some 47% of respondents in the UK reported that digital tools and processes are used to complete sustainability assessments on less than half or none of their projects. By comparison, Europe’s figure is lower, with 40% of respondents reporting that digital tools and processes are used to complete sustainability assessments on less than half or none of their projects, indicating that the UK is falling behind the rest of the region.
This year’s results also show that there is much room for improvement in measuring carbon emissions. Some 76% of professionals in the UK stated that they make no operational measurement of carbon emissions on projects, which is in line with the whole of Europe, but slightly higher when compared globally (72%). More than half of the UK respondents also said that they do not measure embodied carbon. For those that do, less than 14% use it to select the materials they use in their projects.
When probed on the barriers to reducing carbon emissions, around 38% of contributors identified both the lack of established / adopted standards, guidance and tools and high costs or low availability of low-carbon products as the most fundamental issues. Alongside this, contributors also highlighted cultural issues and established practices as a challenge.
Behavioural change
Kisa Zehra, sustainability analyst at the RICS, said: “Behaviour change is happening, with higher rents and prices being seen for the more desirable sustainable properties, and climate risk assessments by investors on their built assets rising across the globe. But, measuring all forms of carbon is also critical to the changes we need to see from the built environment.
“Barriers to progress cited in the report have included a lack of established standards, guidance and tools. However, it is equally fair to say that industry must adopt these tools and standards where they are available and should make carbon assessment and management an integral part of business practice. Industry needs to work in collaboration to succeed. The work RICS is leading with partners, for example the ICMS coalition in developing a cost measurement standard that combines cost and carbon reporting, is a key example.
“RICS will continue to promote research, and demand policy changes while working in collaboration with industry, governments and our professionals to increase the impact of the built environment on positive climate strategy.”
Key findings
- Occupier and investor demand for green buildings continues to rise in the UK as nearly half of respondents report lower rents and sale prices for non-sustainable buildings.
- 55% noted a rise in climate risk assessments by investors on their built assets, suggesting that climate issues could be influencing the behaviour of key market players.
- Lack of tools, databases, established standards and benchmarks identified as key obstacles.
- Contributors also highlighted high costs or low availability of low-carbon materials and skill shortages as a challenge.
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