Key barriers to sustainability standards
To raise sustainability standards in commercial real estate and meet corporate demand for more sustainable rental options, our global real estate research identifies three key barriers that need to be overcome: Masu.
- Lack of consensus (including definitions, certifications, and data).
- The need for cultural change and organizational transformation.
- And bringing older buildings up to modern sustainability standards is difficult.
Challenges due to lack of consensus
Three-quarters of investors who took part in our survey agreed that the “green premium” (the higher value attached to more sustainable buildings) is primarily for buildings that meet official sustainability certifications such as LEED or BREEAM. I believe it applies to
A recent study by real estate consultancy JLL, based on a survey of office investments over the past five years, found that BREEAM-certified office buildings in London are worth an average of 20.6% more than non-certified office buildings, and rents are found to be 11.6% higher on average. Until December 2021.
However, one of the challenges is that there are a large number of different accreditation and certification schemes and a lack of consensus on how to define and quantify sustainability in real estate. In fact, our research shows that the “lack of agreed sustainable building standards and definitions” and the “lack of globally standardized regulations and policies” are contributing to the market environment that drives companies towards sustainable building. It turns out that this is the biggest barrier people face when increasing their investment.
The biggest barrier companies face in increasing investment in sustainable buildings
Among companies that said they were hampered by the lack of agreed sustainable building standards in their target markets, the US was the most frequently mentioned market where this was an issue, and investors More than a third (37%) mentioned it.
This lack of standardization can make it difficult to quantify the value of sustainable real estate and the potential return on investment in improving sustainability standards. More than four in five investors (81%) believe that their investment in sustainable real estate will increase if there is clear evidence of a green premium.
A concerted effort is underway in the EU to provide a uniform taxonomy, including standards and a legal framework.
Samant Narula, BCLP Head of UK Real Estate
Challenge to business transformation
Investors are recognizing that moving towards sustainability goals requires new attitudes, strategies and approaches to real estate investing. Almost three-quarters (74%) of investors in our survey say their companies need a “major culture shift” to put sustainable buildings at the heart of their investment strategy . The fact that only 29% of investors currently think their company’s management is prioritizing sustainability shows how far companies have to go. There are signs that this cultural shift is already underway, with some companies creating “ESG officers” or similar roles. But will fear of being accused of greenwashing or misclassifying funds under the Articles 8 and 9 regulations deter action? Our research shows that 3.5% of investors of 2020 say that “the risk of being accused of greenwashing” is a barrier to progressing sustainable real estate investment strategies.
Implementing real change and making real estate more sustainable is not something investors can do alone, it depends on the broader ecosystem.
Emma Le Wita, BCLP Real Estate (London/Paris) Partner
Challenge to retrofit
Almost three-quarters (73%) of corporate decision-makers say their organization would prefer to lease older, renovated buildings rather than new construction. The main reasons for favoring this trend are: older buildings are often in better locations (54%), organizations prefer the aesthetics of older buildings (52%), and older buildings have a more positive impact on the brand. (47%). This is in contrast to the investor approach. In most markets, investors say their primary approach is to invest in new buildings (i.e., buildings built in the last 10 years or currently under construction) rather than older buildings. The high costs associated with upgrading real estate are likely to be the main reason for this, with 68% of institutional investors saying the cost of retrofitting buildings to reach good sustainability standards is too high .
In fact, companies claim that a significant portion of their real estate assets cannot be upgraded. On average, companies say that 22% of their property portfolios that do not meet basic sustainability standards cannot be renovated to a higher standard, and 23% cannot be upgraded. It is not economically viable to modify the %. Historic city centers often have a high proportion of older buildings that require extensive renovation to meet current and future sustainability standards. Listing in the UK, where certain architecturally or historically significant buildings receive special protection, can further complicate this.
In an era of high interest rates and high costs, few people can commit to these upgrades, and investors are increasingly flocking to the top floors of upscale, modern buildings. To address this issue, the European Union implemented the Renovation Wave Strategy in 2020. The initiative highlighted the potential to renovate an estimated 35 million buildings and create up to 160,000 new green jobs within the construction sector.
While SLL incentivizes sustainability performance, such as by lowering interest rates, green loans are only available to projects that meet certain sustainability criteria.
Wayne Ma, BCLP Real Estate (Hong Kong SAR) Partner
Increase in sustainable real estate investment
Standardized global definitions and universal standards, combined with more robust data and evidence of a green premium, will clearly help accelerate investment in sustainable buildings. In many jurisdictions, sustainability remains difficult to measure and there is a lack of standardization, making it difficult to compare the sustainability standards of one asset to another and measure improvements over time. can become nearly impossible.
What else can encourage investment? With cost a key barrier, government incentives could play an important role, especially given the cost of renovating older buildings to meet modern standards. There is a gender. Three-quarters of investors believe that investments in sustainable real estate would increase if external incentives such as tax breaks for sustainable real estate were strengthened.
Governments typically do not offer large incentives in this area. Few governments can justify putting money into commercial real estate, especially given the current economic climate.
Kieran Saunders, Co-Leader – BCLP Corporate Real Estate & Funds (London)
Professor Olmo Silva, Professor of Real Estate Economics and Finance at the London School of Economics and Political Science, said:
“Green loans and sustainability-linked loans are certainly important for sustainable real estate, and many of the leading companies have proposals biased toward these.” One of the biggest problems for is meeting borrowing costs, so any discount you can get for leveraging a building is important.
“The concern with this approach is that it is based on two concepts that are still very difficult to quantify: the level of discounts given to greener properties; and the level of discount these properties represent. There is a lack of understanding of how large this should be from a mitigation perspective and what makes a difference from a potential investor perspective. There is a lack of research and There is a lack of a strong methodological approach to quantifying mitigation. Another problem is the reliance on measuring KPIs that are prone to manipulation: when to measure emissions and when to stop measuring them. , What are the KPIs to measure?”
Our research also shows that, rather than standards discouraging investment, investors generally increase their real estate investments in markets where minimum energy performance standards for commercial buildings are imposed or increased. It has become clear that the government is being encouraged, and the important role of the government has been pointed out.
the impact of governments imposing or increasing minimum energy performance standards for commercial buildings;
Businesses agree that government has an important role to play and say renters need incentives too. 73% of businesses believe they need stronger external incentives from governments and regulators, such as subsidies and tax incentives, to rent sustainable real estate. , has increased to more than 80% of companies headquartered in the Middle East and Asia.
Green loans and sustainability-linked loans are certainly important for sustainable real estate, and many of the leading companies are skewing their offers towards these.
Professor Olmo Silva, Professor of Real Estate Economics and Finance, London School of Economics and Political Science
Fons van Dorst, UK executive managing director of property developer EDGE, believes the property industry needs to go further than just meeting environmental and sustainability standards.
Beyond basic real estate sustainability criteria, it is important to consider both the environmental and social impacts of commercial real estate. It’s not just about building sustainably, it’s about building responsibly. Inclusive buildings. This means buildings that are aware of their surroundings, are accessible and welcoming to a diverse range of people, and foster relationships with the local community. We design buildings that are open and inviting, fostering connections between residents and the community. It incorporates spaces where those working indoors and those living nearby can interact.
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