­­­­­­­­­­­­Real estate investor sentiment around Environmental, Social and Corporate Governance (ESG) strategy has seen a significant shift over the last decade as the sector looks to step up and take responsibility for the 40 per cent of global emissions it contributes globally.

A recent survey of the operational residential sector, which has remained resilient in a year full of uncertainty, showed that the largest source of demand for green buildings is coming, unsurprisingly, from investors. With many diversifying their portfolios away from traditional asset classes, we have seen a rise in demand for assets backed by robust fundamentals that will deliver long-term, sustainable income, while fulfilling ESG targets.

Appetite for multifamily across Europe has remained strong, dictated by the continental culture of renting and the sheer cost of buying a home. Investment volumes in the sector increased by 58 per cent between 2014-2019, compared with just 21 per cent for all real estate investment.

With global mobility rising, and figures indicating there could be 8 million international students by 2025, student accommodation also looks set to benefit. During previous economic downturns, higher education enrolment has proven countercyclical and early indications from 2020 figures suggest resilience.

When job prospects are weaker, people are inclined to use the time to upskill and hence enter higher education (see chart below). Coupled with the fact that the number of over-65s is set to more than double to 1.5 billion by 2050 globally, increasing a requirement for senior housing, and it becomes clear that this trinity of sub-sectors have a huge amount of investment potential.

With demand in place, what does the supply looks like? In short, supply is relatively limited across the board and it’s becoming clear that herein lies the opportunity. In order to satiate appetite for sustainable operational residential buildings, the sector must ensure buildings are designed to meet increasing demand for green buildings from governments, tenants, investors, employees and shareholders.

This might be as simple as guaranteeing the building is made from environmentally sensitive materials using sustainable methods or including waste reduction facilities, solar panels and clean tech solutions.

Looking further ahead, we expect to see more governments adopting the approach of the Netherlands, where strict legislation has been set out to regulate the whole planning process, ensuring that local authorities and real estate developers adhere to environmental regulations.

On a fundamental level, arguably the immediate concern is cost, who bears it and whether this is something that will be passed on to the end user. Taking this into consideration while ensuring affordability is in line with local authority requirements is no mean feat. Nevertheless, with a climate emergency on our doorstep and a severe lack of affordable housing across the continent, there has never been a more pressing time for collaboration between the public and private sector.

With demand increasing for green buildings, we are likely to see the adoption of technologies able to facilitate the implementation of sustainable design on a wider scale and, importantly, at a reasonable price.

Further information

Contact Dom Orchard

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