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An historic French office building has been retrofitted with a semiconductor-based heating, ventilation and air-conditioning (HVAC) system which will reduce both emissions and costs, the manufacturers claim.

Helsinki-based indoor air solutions company Halton Group and North Carolina-based semiconductor-based cooling solutions firm Phononic jointly developed the system, which has been fitted at Pierre Charron, a 102,257 sq ft office and retail building in Paris built in 1877.

The partners said this was the first installation of a semiconductor-based HVAC system which heats and cools an entire property. “We have an entirely new HVAC technology which helps property owners meet increasingly stringent climate goals,” said Anu Saxén, managing director at Halton.

The new technology will reduce energy use and carbon emissions by approximately 15%, and costs by about 20% compared with traditional systems, Halton and Phononic said.

"We wanted to provide our tenants with comfortable and environmentally sustainable spaces. This technology is an ideal solution for our purpose," says Francois Menage, CEO of Balzac REIM, which owns the building.

Installation of the new TTAP system

The system uses Terminal Treatment of Air with Peltier (TTAP) technology. When current is applied to the semiconductor-made Peltier cell, one side heats up, and the other cools down. This thermoelectronic phenomenon is used for temperature control in electronics and small coolers but has not previously been applied to a large-scale HVAC system.

Devices containing Peltier cells circulate air with their own fans, causing the air in a room to be either cooled or warmed. Fresh air from the ventilation unit flows into the space through the device.

"Cooling and heating often consume over 40% of the energy used in commercial buildings, so the industry is actively exploring ways to reduce energy consumption and carbon emissions. The announcement of the first TTAP project is a truly exciting moment for us," said Tony Atti, CEO of Phononic.

Halton and Phononic said the system was 20% cheaper than traditional HVAC systems over the building's lifecycle. Savings will be achieved, among other things, by not having cooling water networks, and using smaller water chillers. Fewer moving parts will mean lower maintenance costs.

Bywater Properties' sustainability journey has taken a dramatic turn in recent years, says chief executive Patrick O’Gorman. An investigation into the use of mass timber in its UK developments led to a £1 billion joint venture with Sumitomo Forestry and, this year, the Japanese company taking an ownership stake.

“Sumitomo Forestry is an enormous company in terms of history, culture and financial firepower, which will enable us to fulfil our ambitions of innovating and leading the built environment with a focus on reducing carbon, across the UK,” says O’Gorman.

Patrick O'Gorman

Bywater was founded by Richard Walker, executive chairman of British supermarket chain Iceland, and ex-JLL consultant Theo Michell in 2007. Early developments were in Poland but after O’Gorman joined in 2013 (he is a former CEE capital markets head at CBRE), the company refocused on UK projects with a strong sustainable element. Chairman Walker is one of the most outspoken voices on sustainability in British business.

The company’s flagship project and its first using mass timber is Paradise, a 63,250 sq ft office development in Lambeth, South London, which will feature a cross laminated timber structure and will be zero carbon in operations. 

“We wanted to do something very special and make a big impact in the project and thought that using timber would have an enormous impact on reducing the embodied carbon,” O’Gorman says. However, in 2018, thinking about embodied carbon and timber was ahead of the curve in UK real estate, with most firms focusing on operational emissions. 

Japanese backing

Sumitomo was originally targeted as a funding partner for Paradise but its commitment and enthusiasm for sustainability and using timber sustainably accelerated the relationship. O’Gorman says: “We knew they were committed when, in 2021, they sent a team to visit us for three days, committing themselves to 14 days in isolation as a result!”

With Sumitomo’s financial backing and 51% stake in the company, Bywater’s future looks bright, however O’Gorman points out that timber construction in the UK, where it is relatively rare, is not straightforward.  “We are learning with every project because it is it is complicated and there are risks. We need to be in line with the requirements of planning authorities, the fire service and other bodies.”

Following the Grenfell residential tower fire in London in 2017, where 72 people died, there has been a considerable focus on the use of combustible materials in building, he adds. This affects Bywater, even though timber was not at fault in the Grenfell tragedy.

Using timber for construction sometimes involves slightly higher costs, O’Gorman says. Paradise was originally estimated at a 3% premium over a more conventional build. It is not necessarily the cost of materials, but other factors. For example, a timber designed building is more likely to require larger sprinklers, which increase cost and reduce space. Meanwhile, the fire test for Paradise added “several hundred thousand pounds” in design costs.

Bywater plans to have three timber projects underway by the end of this year, two of which will be office refurbishments with two storey timber extensions, and another three next year. The firm’s primary focus will be on reusing existing buildings, but O’Gorman is concerned that planning authorities might take a too restrictive approach to new developments.

“Innovation is very important part of what we need at the moment and, without new builds, we fear we won’t be pushing innovation enough. Developing low carbon concrete, recycling steel and using timber requires further innovation and there is more scope for that in new developments.”

Paradise does not use quite as much timber as Bywater had hoped, due to fire safety requirements forcing a concrete core, however  "other than that most of the remaining structure will be mass timber," says O’Gorman.

Benefits of wood

Research from Sumitomo and others worldwide is finding that working in a wooden building lowers stress and aids concentration. Sustainability and health benefits of the project feature heavily in its marketing, reflecting what London office occupiers are looking for. O’Gorman says the response from prospective tenants has been positive so far, not least because sustainability is rapidly become a must for London office occupiers.

“When we started the process, we were advised that the potential occupiers would not be interested in embodied or operational carbon stats, or energy use intensity stats, but that is far from the case. When we are presenting to tenants, we find they really understand the metrics, they know what's good and what's bad.”

The company is focused on workspace at the moment, but has begun investigating the “living” sectors, multifamily, student housing and single family homes. Sumitomo built 25,000 single family timber homes last year, so its expertise could be invaluable. 

“We are short of homes in the UK, especially affordable homes and it is one of our biggest social issues,” says O’Gorman. “We hope that using timber and modern methods of construction, we can do something to help.”

A growing number of real estate investors are integrating ESG considerations into their strategies, new research from Colliers reveals.

The broker’s 2024 Global Investor Outlook found that, while Europe may be leading the way on regulation to embed ESG in the built environment, the global nature of investment means standards are being raised across the board. 

“Our survey of investors shows an expanding acceptance that ESG is a key strategic element of investment decision-making, particularly in the EMEA and APAC regions,” the report says. 

"The proportion of investors moving to the phase of ESG-based disposal and acquisition strategies has reached 25%, compared to just 10% two years ago. As a result, a wave of disposals and value-add opportunities are coming to market."

Colliers predicts that the “brown discount” for non-compliant assets will grow to make repositioning them a worthwhile endeavour. Damian Harrington, head of research, global & EMEA capital markets, says: ““The view is that many of these brown assets that are not fit for purpose won’t be cheap enough for a profitable exit after repositioning. But once we see the brown discount reflected, investment volumes will pick up considerably as there is plenty of stock to green up.”

Investors expect the value premiums for ESG-compliant assets to range from 8% for retail properties to 22% for industrial and logistics assets over the next three years. 

Asset owners should be implementing clear decarbonization and resilience strategies, despite economic headwinds, JLL says.

The broker’s The commercial case for making buildings more sustainable report argues that climate risk, occupier and investor demand and regulation make sustainability investments “the smart decision for longer-term performance”.

The report highlights three reasons for making sustainability investments. Firstly, mounting costs from climate risks, including heatwaves, flooding, storms and droughts, are increasingly impacting urban areas, with significant implications for building owners.

Events such storms, wildfires, hurricanes, flooding, droughts and freezes, have cost $612 billion in the last five years in the US alone. Meanwhile, more than 350 cities have peak summer temperatures above 35°C. An estimated 970 cities will suffer such heatwaves by 2050.

Research by JLL and Munich Re shows that cities in Asia and the US sunbelt have the highest climate risk at present (see above). 

Secondly, sustainability measures are also supported by demand from occupiers and their employees. JLL points to a rental premium for green certified office stock of 11.6% in London, 9.9% across Asia and 7.1% in North America.

JLL also points to a global undersupply of green buildings, with an estimated 75% of demand for such properties unmet in the US, for example. In Europe and Asia, less than half of demand for green office space is met with supply.

Finally, asset owners are at risk of difficulties with financing, regulation and insurance if their buildings fail to meet appropriate standards. Both Europe and the US have released major corporate climate disclosure regulations in the past 18 months and the regulatory burden is set to increase.

An increasing weight of regulation is also coming at city level, with cities such as New York and London introducing their own measures to reduce emissions from the built environment. 

The JLL report suggests a number of measures, including energy-efficiency retrofitting, adapting building design and on-site clean energy generation, to make portfolios more resilient. 

Property-linked finance could enable billions of pounds worth of investment into improving the energy efficiency of the UK’s homes and commercial buildings, a new report claims.

The Green Finance Institute report argues that property-linked finance, where loans are linked to the asset rather than the owner, could contribute to the estimated £360 billion ($455 billion) of investment required to upgrade the UK’s inefficient buildings by 2050.

An asset owner using property-linked finance would be able to fully fund energy efficiency upgrades and then transfer payment obligation to a new owner if the property is sold.

The Green Finance Institute said the US Property Assessed Clean Energy (PACE) model of property-linked finance has enabled the investment of over $13 billion in making homes and commercial buildings greener and more resilient.

Emma Harvey-Smith, programme director, Green Finance Institute, said: “Introducing property-linked finance to the UK market could channel billions into improving the energy efficiency of the UK’s homes and buildings. The GFI first identified PLF as a solution in 2020 and looks forward to working with the finance and retrofit sectors to bring forward a scalable and customer-centric model for PLF that will support the UK’s net-zero ambitions.”

Singaporean sovereign fund GIC has anchored a new sustainable real estate fund, which will focus on retrofit and redevelopment.

Italian real estate investment manager COIMA SGR announced a first close for its Opportunity Fund III, with an initial €200 million ($218 million) committed by an Asian sovereign wealth fund, understood to be GIC, as anchor investor. 

The new vehicle will focus on decarbonising office and residential real estate across Italian cities, with a “brown to green” strategy and plans to raise €500 million by 2024, with potential to invest €1 billion with leverage. The target return rate (levered IRR) is 14%.

COIMA will particularly target central areas of Milan and Rome, where corporate demand for sustainable real estate is strong. The portfolio will be fully aligned with European taxonomy on decarbonisation, and all buildings will be LEED certified.

Separately, COIMA announced that its ESG City Impact Fund (COIMA Impact), which has so far has raised over €800m from Italian institutional investors and is set to reach €1bn in investment by year end, has also approved an increase in its target size from to €1bn to €2bn.

Manfredi Catella, founder and CEO of COIMA, said: “The first close of COF III and the expansion of our COIMA Impact Fund underline Italy’s continued importance as a strategic market for national and international capital focused on sustainable urban regeneration.”

(pictured above, Pirelli 35, a COIMA project in Milan)

Sustainability-driven refurbishments are driving office development in London, according to Deloitte.

The professional services firm’s latest London office crane survey found there are 124 office schemes under construction, totalling 15 million sq ft of space. The UK capital has seen the highest volume of new office starts on record, with 5.1 million sq ft of new construction starting across 43 schemes since the spring. Refurbishment projects account for 3.3 million sq ft in 34 schemes.

The increase in refurbishments has been driven by the anticipated tightening of Minimum Energy Efficiency Standard (MEES) regulations and occupier demands for space which matches their own sustainability commitments and aspirations, said Deloitte. 

The UK government intends that all commercial buildings must have an energy performance certificate rating of C or better by 2027 and B by 2030. Owners will not be able to lease out buildings which do not meet the standards or do not have an exemption.

Philip Parnell, partner and real estate valuation lead at Deloitte, said: “Occupier focus on premium space, coupled with addressing the anticipated MEES deadline and drive to net zero, is continuing to provide a strong stimulus to refurbishment activity. This is a trend that is countering the backdrop of an otherwise challenging macro-economic environment.”

London developers told the survey they expect achieve operational net zero across their portfolios by 2040. However, they highlighted the cost of construction as the biggest obstacle to achieving net zero. 

A UK real estate investment trust is proposing to amend its investment objectives in order to focus on a sustainability improvement and decarbonisation strategy.

The Schroder REIT, which manages a £466 million ($585 million) diversified portfolio of 40 properties across the UK, today published a circular proposing amendments to its investment objective and policy, and to the company's investment management agreement.

The new strategy will focus on adapting existing buildings to make them “modern and fit for purpose, to achieve a green premium and capitalise on mispricing”, REIT manager Schroder Real Estate Investment Management said in a statement accompanying its interim results.

Alastair Hughes, chair of the REIT’s board, said: “As sustainability considerations become even more important for investors and occupiers, we have a strong conviction that it will clearly help to differentiate the company and drive more sustainable, risk-adjusted returns.”

Schroder REIT said there is: “an opportunity to offer investors a genuinely differentiated proposition, whilst also attracting new investors who have specific sustainability objectives which are aligned to the real estate sector’s decarbonisation targets, and improve the liquidity and rating of the company’s shares”.

The REIT announced net asset value (NAV) down 1.6% to £296 million in the six months to 30 September and a 1.1% NAV total return. It also announced the completion of Stanley Green Trading Estate, 80,000 sq ft operational net zero warehouse scheme in Manchester (pictured above). 

A whole life cycle approach to buildings is needed for real estate to hit Paris Agreement targets, a new report argues.

Investment manager DWS's Decoding Carbon in Real Estate: Strategic implications of taking a whole lifecycle approach report says refurbishment of existing assets and greater use of low carbon materials will give real estate a better chance of reducing its emissions. 

The report notes that embodied carbon in construction accounts for 11% of global emissions. As a consequence, refurbishment is increasingly targeted over development in some markets, such as the UK, where refurbishment is now more common than new development in the London office sector. 

However, regulations and voluntary standards remain behind the curve on embodied carbon, the report says. Neither CRREM nor GRESB have integrated embodied carbon into their assessments, although both are considering this for 2024. And while green building certification regimes LEED and BREEAM both include assessments of carbon on a whole lifecycle basis, the main weighting of scoring is on minimising energy use at the operational stage.

Many nations lack databases detailing the embodied carbon of construction materials, says DWS and existing databases use different materials, assumptions, units of measurement, and standards of data verification, “making the data difficult to compare”. 

The industry needs to balance embodied and operational carbon considerations, DWS says. For example, triple-glazing creates more embodied carbon than double glazing but is 40% more thermally efficient. 

The picture is complicated because whole life carbon assessments can vary widely in their outcomes, depending on methodology. DWS gives the example of the proposed Marks & Spencer store redevelopment on Oxford Street, London, where the carbon lifecycle assessment included in the store’s planning submission was challenged by heritage groups on the basis that flawed assumptions were used to portray a new building as the lower carbon option.

However, a 2021 study by Arup, while demonstrating that refurbishing existing buildings is the lowest carbon option using a whole lifecycle approach, a new building constructed to the highest environmental standards is not significantly worse. 

A rigid focus on refurbishment risks leaving some assets not just stranded but abandoned, Patrizia’s UK & Ireland development chief warns.

In an interview published on the European real estate investment manager’s website, Dan Williams, head of development for the UK & Ireland talks about “brown to green” refurbishments, saying: ““We believe in the opportunity to move brown into green. It is one of those rare examples where there is a strong investment case and, at the same time, it will make a real difference to cities.”

However, he also notes that some buildings simply cannot be refurbished, especially in the office sector. In a difficult office market, investors are reluctant to fund retrofitting a redundant building. The issue is complicated by the fact that many office blocks were only built to last 25-30 years.

“You can end up with weird circular arguments concerning embodied carbon,” Williams said. “Yes, we should be reusing buildings, we shouldn’t be knocking them down, but the question arises: if you can’t reuse them, what do you do with them? This is particularly relevant when there is a housing crisis going on across Europe.”

Property owners and developers need to look again at the impact of construction and redo calculations concerning refurbishment and construction. When developers are looking to construct, Williams said, they need to look to the longer term – up to 100 years, which will also impact costs.