Two of the latest global trends are the rising number of ESG/green finance-focused real estate funds and an increase in the amount of capital targeting the operational real estate sector. Given that this sector is still fairly new in many European countries, such as those in Iberia and Central and Eastern Europe, it provides developers and investors with a great opportunity.
They are able to deliver new assets that not only comply with local regulations over the short term, but can invest today in the design, delivery and efficiency of buildings that meet the highest ESG targets which capital will demand over the medium to long term in order to be a part of one’s portfolio.
However, there is one challenge that should not be overlooked: the vast majority of emissions from buildings are linked to the construction process. From an environmental point of view, in most cases, it therefore makes far more sense to repurpose existing building stock that meets the demand of the market but also provides an invaluable opportunity to upgrade an asset’s ESG-credentials at the same time. Yet from a monetary point of view this is where, at times, it can be slightly complicated.
In the Netherlands, which is arguably, one of the leading European countries when it comes to ESG and real estate thinking, research from the Economisch Instituut voor de Bouw (Economic Institute for Construction and Housing or EIB) and the Energy Research Centre of the Netherlands (ECN) shows that the costs per sq m associated with upgrading an existing office building from an Energy Performance Certificate (EPC) F to a C label can be fairly small. However, when upgrading from a G label, costs can be substantial, depending on the building’s condition but mostly due to the required additional isolation of facades and roofs.
The EIB and the ECN predict that the average period to get a return on investment when upgrading to a C or B label ranges between three and six and a half years, while it can take up to 13.5 years to see a return on investment when upgrading from a B label to an A label. However, as technology improves and efficiencies are captured the return of investment period will diminish.
As a result, ESG-focused real estate funds will have to think carefully about their assets under management and future investments, and whether it might make more sense to upgrade existing stock or utilise new methodologies and delivery formats such as modular construction which has a significantly shorter delivery point than traditional building methods.
If an asset can be sustainably refurbished or repurposed, this will result in lower emissions than if it is torn down and rebuilt, assuming the same operational performance can be achieved.
Furthermore, if a building can be dismantled and recycled then it can also limit emissions from extracting new raw materials, as well as not wasting the embodied carbon from making the material in the first place. After all, future-proofing an asset can be achieved in a number of different ways to meet environmental targets.
Further information
Read more Impacts: Carbon offsetting
.jpg)
.jpg)
.jpg)
.jpg)
