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M7 Real Estate says it will deliver “Ireland’s greenest logistics refurbishment” with the regeneration of a Dublin facility.

The the pan-European investor and asset manager said its programme of sustainability-focused works at Ballymount Logistics Hub, Southwest Dublin will have the best energy rating for a refurbished logistics unit in Ireland once complete.

The 151,000 sq ft warehouse is set to achieve an improved Building Energy Rating (BER) of A3 and “very good” BREEAM In-Use certification.

M7 will install LED lighting, EV charging points and an air source heat pump system to the development, which was constructed in 1996. It will also be using locally-sourced and recycled materials where available and recycling 95% of construction waste.

John Murnaghan, managing director at M7 Real Estate Ireland, said: "As we continue our retrofit first approach to our portfolio through a rolling capital expenditure programme of sustainability-focused improvements, it is crucial that we create a cost efficient, sustainable asset that will prove extremely attractive to potential occupiers. 

“Once the works are complete, we expect this unit to be more energy efficient than the majority of newly built warehouses that are springing up around Dublin, especially when considering the huge environmental cost of development. This is clearly demonstrated by the fact that this refurbishment will result in a staggering 70% saving in embodied carbon versus a full new construction.”

Coima has bought a portfolio of Rome office buildings, with the intention to boost their sustainability.

The Italian investment manager has acquired a fund which owns three government-occupied buildings: Palazzo Verospi and Galleria Sciarra (pictured above), both in the Via Del Corso area and Palazzo Monte in the Campo de' Fiori area. The 484,375 sq ft portfolio has a total value of more than €200 million ($215 million), Coima said.

It will implement an asset management strategy aimed at improving the energy efficiency of the buildings, reducing their carbon footprint, and securing BREEAM certifications.

Coima is also seeking to convert the fund to Article 8 status under the European Sustainable Finance Disclosure Regulations (SFDR), designating it as a fund to promote positive social and environmental outcomes.

The acquisition was made through COIMA’s Core Fund I and Core Fund II, which are backed by Italian institutional investors and focus on the acquisition and management of income-producing properties in major Italian cities.

The transaction was supported by the issuance of a green loan from pool of banking institutions consisting of Credit Agricole, BPER and ING.

Gabriele Bonfiglioli, COIMA's chief investment officer, said: “COIMA is honoured to take on the management of these important and historic buildings in the heart of Rome, with the aim of improving their sustainability performance and ensuring they remain fit for the future. Rome is a strategically important market for COIMA and a city with great potential for urban redevelopment projects focusing on driving positive social and environmental impact.”

The real estate sector is poised at a critical juncture, with hopes of a resurgence in investment activity, claims the latest Emerging Trends in Real Estate® Global Outlook 2024, jointly released by PwC and the Urban Land Institute (ULI).

The report, amalgamating insights from thousands of real estate leaders across Europe, the United States, and Asia Pacific, suggests optimism brews for a gradual rebound from one of the most severe investment downturns in recent years.

Thomas Veith, PwC global real estate leader, emphasised the imperative for sustainable adjustments in the industry, highlighting a growing preference for alternative property sectors driven by demographic shifts, digitalisation, and decarbonisation imperatives.

Lisette van Doorn, CEO of ULI Europe, stressed the potential role of market dynamics in advancing environmental agendas, including decarbonization efforts, as investors wield greater negotiation power amid distress scenarios.

The report reveals a shifting investment landscape, with housing, logistics, and alternative sectors gaining prominence, particularly in light of challenges associated with affordable housing. Socio-political concerns such as housing affordability and social equity are gaining traction globally, influencing investor attention and political agendas.

The report also delves into changing occupier needs, stressing the importance of aligning real estate offerings with evolving demands driven by demographic shifts and climate change. 

Grosvenor’s UK real estate arm has announced the successful sustainable retrofit of 1 million sq ft of space. 

The developer and investor, owned by the Duke of Westminster, said this represented “a significant milestone” in the company’s £90 million commitment to improve the environmental performance of its portfolio in the capital, and its wider ambition to reach net zero.

Grosvenor also declared its support for the creation of a UK National Retrofit Strategy, with incentives and financing options to encourage refurbishment.  

Since launching its retrofit programme in 2020, over 360 offices, shops, and homes have been transformed to optimise energy efficiency. Many of these projects - of which around 70% are commercial and 30% residential - were completed with occupiers in situ; with interventions including converting lightbulbs to LEDs, installing double glazed windows and insulation.

The company has also decommissioned 55 boilers and replaced them with fossil fuel-free alternatives helping to drive a 40% reduction in gas usage since Grosvenor Property UK’s carbon baseline was established in 2019.

Grosvenor’s development programme is also prioritising retrofits. Since 2020 an additional 250,000 sq ft of space has been refurbished, rather than being demolished, to save carbon. This includes the delivery of Grosvenor’s first net zero carbon office building, Holbein Gardens (pictured above), and the transformation of Newson’s Yards, to create a new design industry destination in Belgravia from a former timber yard and significant refurbishments of The Barley Mow and The Audley, two grade II listed pubs in Mayfair.

Ed Green, sustainability director at Grosvenor Property UK, said: “At a time when we consistently breached the 1.5°C barrier for the first time, decarbonising homes and workspaces must be accelerated. Simple cost-effective changes can significantly reduce energy demand and improve a building’s sustainability. Acting now to make straightforward low cost changes is a more effective approach than postponing activity until a full building refurbishment may be possible.”

In 2024, Grosvenor will upgrade a 250,000 sq ft and refurbish fourteen listed buildings as part of its South Molton development, using recycled steel, reclaimed bricks and anti-pollutant tiles, leaving historic external structures largely untouched.

Sustainable building certifications are becoming an essential for occupiers, lenders and investors, investment manager Axa IM Alts says. 

Justin Curlow, global head of research & strategy, real assets, at AXA IM Alts, said: “Occupiers and investors alike have seen ESG, health and wellbeing considerations catapult themselves up the priority list for both space planning and investment decisions.”

He said it was becoming clear ESG-compliant assets let faster and at higher rents, but added: “What is less quantifiable but anecdotally clear is also the greater level of interest, and therefore liquidity, as more occupiers require certifications for buildings to be considered for occupation and both lenders and equity investors insist that either certifications are in place or capital expenditures under-written in order to consider investment.”

Curlow said upgrading existing stock and new development to cater to this change in occupier requirements “will provide a wave of investment opportunities” over the coming years. 

Institutional investors in real assets are looking to sustainability to boost financial returns but are lagging on net zero targets, a study from Aviva Investors found.

The UK investment manager surveyed 500 institutions worldwide, of which 44% had more than $25 billion of assets under management. Nearly three-quarters (73%) of institutional investors want to prioritise financial returns when investing in sustainable real assets. Furthermore, 53% see evidence of improved financial performance as driving them to invest – or increase investment – in sustainable real assets, followed closely by their ability to show sustainability-related impact (51%).

Only 5% did not consider ESG/sustainability factors when making real asset investments, down from 7% the previous year.  However, ESG was a “critical and deciding factor” for only 17% of institutions (21% in Europe). More than three-quarters of investors said ESG was one of several factors considered or a “growing but not essential” consideration. 

The key driver for investing in sustainable assets was their ability to generate financial returns, cited by 73% of investors, ahead of decarbonisation potential (cited by 53%) and excluding assets on ethical grounds (51%).

The most favoured real assets investment theme or sector for expanding sustainable investment was renewables infrastructure, cited by 49% of respondents. However, decarbonising existing assets (36%), low-carbon, new-build assets (32%), social housing and infrastructure (30%) and nature-based solutions (27%) were also cited.

For investors without sustainable assets exposure, nature-based solutions was a surprising top choice (cited by 25%), followed by social housing and infrastructure (23%), sustainable lending (23%) and low-carbon, new-build assets (20%).

Addressing the energy efficiency and carbon emissions of existing buildings hits the sweet spot of having the most ESG impact (cited by 71% of investors) and the best financial returns (70%). However, from a purely financial returns point of view, investing in emerging technologies was thought to be the best investment (73%).

Despite the high percentage of investors favouring sustainable or low-carbon investments, there has been mixed progress with net zero targets. Only 15% said they had made a net zero commitment and were reporting progress, while 17% said they had no net zero target nor any intention to develop one. This was the case for 32% of North American investors.

However, 57% overall have made a net zero commitment, even though 21% had made a commitment but not taken action. More than half those surveyed (53%) said they were either not confident at all or somewhat unsure of what was needed to meet their long-term sustainability commitments.

The key material risk for sustainable real assets investment was the difficulty in measuring positive impact, cited by 47%. The risk of poor performance was also cited as a concern, chiefly by North American investors (53%), but also Asia Pacific (46%) and Europe (36%).

Patrizia has received planning permission for an environmentally and socially sustainable redevelopment project in the City of London.

The German investment manager will redevelop 30 Minories, which currently comprises a 16-storey tower and 7-storey podium, to create a 16-storey building 186,500 sq ft of office, retail and leisure space.

30 Minories is targeting BREEAM ‘Outstanding’, WiredScore Platinum, WELL Platinum and NABERS UK. The scheme includes terraces on each floor accessible for the office occupiers, which incorporate ‘English woodland’ landscaping inspired by landscape architect, Kim Wilkie.

The plans will also see the Writers House – a neighbouring Victorian warehouse– retained and refurbished to provide community use floorspace at ground and lower ground level, with the upper levels of the 6-storey building leased at affordable rents to local enterprises and start-up businesses.

Richard Scutt, director, real estate development at Patrizia, comments: “Not only will the scheme provide best-in-class premium offices to meet contemporary occupiers’ demands for sustainable and amenity-rich space, but it will also deliver significant urban greening as well as social and cultural value for the local community through the retrofit of Writers House.”

Progress on the decarbonisation of real estate is being held back by a lack of understanding and collaboration between property owners and occupiers, according to a new report from the Urban Land Institute C Change programme. 

The report claims that, if better alignment between the two parties is not prioritised, it has the potential to increase total emissions from the built environment over the medium to long-term. The Occupiers and owners: Faster and further on the pathway to decarbonisation together report argues for a “fundamental questioning of many current working practices and structures”.

The research was based on interviews with heads of real estate for large corporate real estate occupiers from wide range of industry sectors.

Lisette van Doorn, CEO, ULI Europe, said: “This report demonstrates the main issues with collaboration, which are often related to historic ‘transactional’ relationships, variations in decarbonisation objectives and perspectives, and longstanding approaches to areas such as lease structures, contracts, and fit outs, which all need careful reconsideration. 

“At the heart of progress on this topic is that owners and occupiers build a trusted long-term partnership that considers each other’s objectives, which requires each side to be open about their perspectives and the wider concerns faced by each stakeholder.”

The report cites a number of factors hindering progress, including:

Going forward, the report argues for more standardised practices, including in the approach to due diligence for occupiers seeking space, and for ESG considerations to be included as standard in heads of terms with minimum requirements considered as non-negotiable. However, ULI recognises such changes will require education and industry wide commitment.

Real estate investors in Asia Pacific are looking for ESG retrofit projects, to develop new green buildings and to create on-site renewable energy, a CBRE survey found.

The broker’s APAC 2024 Investor Intentions Survey found just over 60% of investors, the bulk of which are private equity funds, plan to retrofit existing assets to make them ESG compliant. 

More than half the respondents intend to develop or buy green buildings this year and 40% said they plan to enable on-site energy generation. 

The survey also found investors to be slightly more willing to pay a ‘green premium’ with only 27% refusing to pay extra for a more sustainable asset, down from 30% in 2023. More than 40% said they were prepared to pay a premium of up to 5%, while a quarter would pay 6-10%.

As we head towards 2030, the world is under pressure to deliver a 45% reduction in emissions if it is to stay on track for the Paris Agreement target of keeping temperature rises this century to 1.5°. This means more pressure on real estate to decarbonise.

What can we expect to see in the year ahead and what should the industry be doing? Below are the thoughts of a number of real estate's leading sustainability professionals. We will keep adding to this story as Sustain slows down over the Christmas and New Year holidays, so keep checking in.

If you would like to submit your views on the year ahead, contact news@sustain-re.com.

Neil Granger, senior director, TFT

I’d like to think 2024 will be the year when we make some significant advances towards achieving Net Zero carbon. I am cautiously optimistic about the impact of the Energy Efficiency Directive (EED).  Introduced earlier in 2023, this has established the principle of a legally binding target to reduce the EU’s final energy consumption by 11.7% by 2030 (compared with 2020 figures).  

Many EU states will be adopting this legislation during 2024 and it should begin to result in a more concerted upgrade of existing building stock, much of which is sub-standard and requires high levels of capex to bring it up to the levels set out in the EED. Nonetheless, change on this scale requires significant time, resources and commitment from owners of assets.  Globally, less than half of investors are actively seeking to achieve Net Zero Carbon across their assets.  

Hanna Uusitalo, vice president environment and sustainability at KONE Corporation 

Around 80% of the buildings we have today will still exist in 2050. This means that retrofitting or repurposing buildings to make them more energy efficient and liveable is crucial for addressing the climate emergency.A particular focus going forward is pushing towards circularity.

Embedded carbon in the built environment is a major issue and circular economy principles are quickly developing to reduce the consumption of the planet’s resources and materials by sharing, recycling, reusing and repurposing materials. There is an urgent need for solutions that are low or no carbon and upgradable, and which achieve both sustainability and business goals.

Faced with the climate emergency and resource shortages, there is a global push for finding ways to continually address these issues and bring about permanent change.

Lara, Young, group head of ESG, Cromwell Property Group

 ESG will continue to be a top priority for commercial real estate investors and will receive even more attention in 2024. Such considerations are increasingly being factored into investment processes and we believe that this is a thematic process which will only escalate in 2024. Investors which neglect to adapt inefficient assets, choosing to redevelop traditionally rather than adaptively reusing the existing asset – or who build on undeveloped land rather than previously developed land – will find it challenging to attract occupiers, capital, funding and buyers.

We’re also expecting to see sustainable finance become the industry standard as European banks, as well as other financial institutions, evolve from offering discounts on ESG-linked loans to sustainable financing becoming the industry norm.

Eri Mitsostergiou, director, Savills world research

In 2024, sustainable building practices will take centre stage, reflecting COP28's emphasis on decarbonization and refurbishment over new development, as exemplified by the Buildings Breakthrough’s global push for near-zero emission and resilient buildings by 2030. 

The decarbonisation of the industry will also be led by new regulations in some jurisdictions. This is going to lead to more green certifications such as LEED and BREEAM. In this context, the use of sustainable and low-emitting building materials and sustainably harvested wood will become increasingly common and will help to reduce environmental impact.

Social value, which is in essence about the relationship a building or development has with the local community, will be another driving force, with real estate companies focusing on affordable housing development, community engagement, and diversity and inclusion programs.

The integration of renewable energy sources like solar and wind power will also become standard as they become increasingly cost-effective. Alongside that, we expect investments in sustainable real estate and energy infrastructure to gain further momentum. Real estate companies will focus on ‘greening’ their portfolios and channel resources into solar panels, wind turbines, and other sustainable practices.

Lisette van Doorn ULI Europe CEO

COP28 has held a mirror to progress on efforts to decarbonise the built environment, where real estate is responsible for a massive 37% of global carbon emissions. There were welcome pledges announced to accelerate progress such as the Buildings Breakthrough commitment by 27 countries to make near-zero emissions and climate-resilient buildings the norm by 2030, but there was also a clear sense that the overall pace of action from the built environment isn’t rapid enough, with many hurdles impeding the progress we need. 

ULI’s latest report shows that a lack of alignment between property owners and occupiers is not only hindering progress on decarbonisation, but it also has the potential to increase total emissions over the medium to long-term. Yet at the heart of the solution is the need for a stronger partnership and closer collaboration between occupiers and owners, which itself echoes an imperative of the ULI’s C Change programme, in that to drive transformation we all must unite in our urgent response.

Our recent C Change Survey did reveal some cause for optimism, showing that decarbonisation is rising up the agenda among Europe’s real estate investors and managers, with 89% of those surveyed factoring in transition risks in investment decision making, indicating these risks are being taken seriously. In addition, carbon pricing, a prominent focus of COP28, may provide one of the biggest opportunities for the industry to make the greatest impact on carbon emissions.

Laura Jockers, global head of ESG for M&G Real Estate

Over the next 12 months, real estate investors will continue to look at new ways to decrease carbon emissions across their portfolios whilst ensuring investments remain income producing.

Delivering meaningful action to reduce emissions requires reliable data and methodologies. However, obtaining the data needed to make these informed decisions remains very challenging and time-consuming, particularly for reducing emissions associated with development activity and tenanted space. To help tackle this challenge, we want to see more collaboration between real estate investors, developers, and occupiers including sharing energy data so they can work together to improve the energy performance of their buildings.

Meanwhile, the concept of net zero continues to be both simple and deeply complex. There is still no universally accepted standard for what qualifies as a net zero carbon building, and at the same time, the number of regulatory sustainability requirements needed across different global markets continues to rise. Over the upcoming 12 months we hope there will be more alignment between the various ESG regulatory bodies so that we can create universal standards and avoid duplicative reporting.

Andrew Clarke, vice president, UK office development, Trammell Crow Holdings

Commercial buildings, whether they are new, repurposed or refurbished, need to become better linked to the towns and cities in which they are located. The real estate sector has made great strides in terms of placemaking, creating active buildings that promote community, attract occupiers and add vibrancy, but there is another untapped opportunity and that is to connect to the very fabric of a city. More and more countries are investing in infrastructure, particularly in support of sustainability and meeting net zero targets.

Trammell Crow believes more landlords and developers need to and will embrace the use of clean infrastructure and energy to power buildings as part of a holistic performance perspective. That might be solar PV on the roof – and the extension of permitted development rights in the UK to help facilitate this is very welcome.  But it might also be connecting to existing infrastructure – in this regard innovation is key to making the greatest impact.

We hope to see a new movement spear-headed by investors, developers and landlords to set new standards, which is not only commercially astute because it will help assets retain value and attract occupiers, but also contributes positively to society and promotes the health and wellbeing of our planet and those who rely on it. It will mark a great evolution of our real estate industry.

Vicky Cotton, ESG director at Workman LLP

As we approach 2024, proptech is soaring up the priority list for many real estate businesses seeking to take action to achieve more sustainable operations. Smart technology presents the definitive means of shifting from a ‘business as usual’ approach to managing commercial property, to educated and considered operational improvement or ‘managing for performance’ – the exact focus of the Better Buildings Partnership framework I was proud to help develop and launch this month. This sort of industry collaboration is coming into sharper focus as we drill into the more challenging decarbonisation processes that falls under Scope 3.

2024 should see more meaningful progress in this area, specifically concerning the emergence of technology that can fast-track data sourcing, since a critical element of ESG progress centres on having the intelligence and detail to make and measure the impact of changes. We are finally seeing progress in the installation of smart meters within tenants’ demises too; further evidence of a more collective cross-sector decarbonisation drive.

ESG is now a firm priority across the investment community. Today we regularly see investors superseding regulatory requirements and government policy in pursuit of their own - more demanding - net zero investment criteria. As this becomes more engrained, my hope is that the focus will go beyond point-scoring, and further towards performance improvement at every level – this is the truest form of collaboration after all.

Andrew Smith, president of SIOR Europe and partner at Carter Jonas 

Across Europe, we have seen a fluctuating office and industrial market, however the one constant has been the growing importance of ESG and sustainability, driven by investors and occupiers alike. That said, fuelled by a difficult market, rising inflation and interest rates, there has been too much assertion in the property industry that positive change on climate matters is cost-prohibitive.

As constructions costs stabilise next year, we hope there will no longer be a good excuse to avoid setting high sustainability standards and leading by example. The latest UKGBC report highlighted that insufficient progress now means we need to act twice as fast to meet net zero targets.

There are some key drivers here across Europe: the growth in regulation across Europe; the need to hire and retain talent, as well as encourage productivity, aided by buildings that improve the health and wellbeing of employees; rising energy costs and both investors and occupiers being prepared to pay large premiums for properties with green credentials.

Penny McCallum, head of sustainability at BW: Workplace Experts

It’s a fact that 80% of all buildings that need to be constructed by 2050 have already been built. Therefore, the focus for investment is shifting towards existing stock which needs enhancement to not only meet net zero targets, but also to attract occupiers, who are becoming increasingly stringent about the minimum sustainability credentials that they will accept from their premises.  

This means a significant rise in retrofit and refurbishment at a time when resources are strained and construction costs high, albeit stabilising. We need a sharper shift in focus to a whole life approach, which encompasses design but also operational performance.

While there is more awareness about operational performance, more guidance and standards are needed. We not only need standards but also transparent reporting from landlords and occupiers on performance. With data comes knowledge and with collaboration comes improvement. 

James Nelmes, director, Bennetts Associates

Against the backdrop of COP28 it’s easy to despair at the failure of governments and fossil fuel providers’ ability, or willingness, to progress beyond business as usual. However, mainstream media and public opinion around the world are increasingly recognising the shortcomings of these organisations in stark contrast to what the world requires and expects of its leaders. In the property industry we have talked for several years about ‘stranded assets’ and, similarly, countries should be wise to the risk of becoming ‘stranded economies’. 

We are in a time of rapid change and expect that 2024 will continue and accelerate that change. Yes, governments and big business need to demonstrate leadership, but the change is happening anyway. It has to. In the face of change, and driven by occupier expectations, the investors and developers who are clear, aligned and genuine in their focus to reduce carbon consumption quickly will deliver resilience and returns. 

This will mean ongoing growth in both sustainable refurbishment and the adoption of biogenic construction materials, such as mass timber, at scale. The approach to – and priority placed upon – biogenic materials varies internationally. For instance, in India timber is almost impossible to adopt as a result of regulations designed to protect natural resources. Here, our focus is on reducing operational emissions through climate-responsive design, which is especially important given how carbon intensive the country’s grid is.