Going green – the significance of the real estate sector

A combination of the COVID-19 pandemic, Brexit and COP26 has in many ways accelerated changes that were already taking place in the property market in relation to the design, construction and use of buildings. The built environment accounts for a significant proportion of the world’s carbon footprint and ESG issues have gained the renewed attention of the property industry, corporate occupiers and funders.

Optimising environmental and social benefit is now at the very heart of new developments. But in addition to designing and constructing new state of the art “green” buildings, the challenge of adapting and repurposing existing buildings is significant. Examples include adequate connectivity, efficient use of energy, waste minimisation and management, and travel infrastructure including electric vehicle charging and cycle storage. Occupiers are looking for flexibility, including shorter terms, with owners needing to consider carefully how to enhance existing stock to attract those occupiers. In addition to occupiers’ own ESG commitments, they also need to offer their workforce enhanced amenities and facilities in order to attract and retain staff.

There are four key ingredients to success in this area:

• Collaboration with tenants, partners, customers and communities, which is of fundamental importance in setting and achieving ESG goals. Achieving ambitious net zero targets should be a shared aim, and requires shared effort.
• In addition to the drafting of the underlying leases and commercial contracts, the collection and sharing of data is essential if all parties are to work together successfully in partnership, understanding the baseline in order to improve.
• Smart buildings and proptech offer innovative opportunities for landlords, tenants, partners and customers to meet their respective ESG targets together. Increased understanding of building operations, rapid identification of issues and efficient (even automated) responses are all needed to ensure success.
• Targeted capital to fund investment for the future. We are already seeing the growth of green financing, aligning capital to ESG strategy as well as the negative impact of sub-standard environmental performance being priced in to property values. Acceleration of effort in this area will only continue as “going green” increasingly becomes the commercially rational, as well as responsible, approach.

There is now a sense that the property industry, corporate occupiers and funders are pulling together to address the challenge of climate change. Going green must be in the interests of all stakeholders and mutually beneficial collaboration is essential if green targets are to work hand in hand with commercial objectives.