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Sustainable projects featured heavily in the list of MIPIM Awards winners, announced yesterday in Cannes, France.

Winners included Amsterdam waterfront apartment development Sluishuis (pictured above), a zero energy building developed by Beisx RED and VORM Ontwikkeling, which won the best residential development prize.

Other winners included Atelier Gardens, a regeneration of a former film studio site in Berlin, which features a "radical" greening and diversification strategy, and Lanserhof Sylf, a German health resort which reuses on-site buildings and features the largest thatched roof in Europe. Best mixed-use development went to Morland Mixité Capitale, the redevelopment of a city block on the banks of the River Seine in Paris, designed by David Chipperfield, where new buildings have been woven into existing structures.

MIPIM Awards jury chairman, François Trausch, CEO of PIMCO Prime Real Estate said: “The judges were highly impressed by the significant strides made in sustainability across the majority of the projects presented at one of the world’s most prestigious real estate competitions. With so many outstanding entries, selecting only 12 winners proved to be a challenging task”

This week, a new report by the Climate Change Commission warned that the planning system is one of the primary obstacles to the UK hitting its net-zero targets. 

While the commission was talking primarily about the need to accelerate the delivery of green energy infrastructure, policymakers should be aware that a lack of clear planning guidance is also severely hindering efforts to decarbonise older offices, shops and other commercial buildings that do not meet today’s sustainability standards.  

This is a major challenge in London and across the UK, with projects stalling as developers and planners debate a fundamental issue, to retrofit or redevelop? 

A number of recent cases, including the ongoing inquiry into planning proposals for the Marks & Spencer store on Oxford Street, show there is no easy answer or one-size fits all approach. The commercial property sector is united behind a ‘retrofit first’ approach, which means adapting and updating an existing building for future use, limiting the amount of embodied carbon - but what happens when this approach isn’t feasible? 

It is becoming clear that architects, developers and planners alike need clearer guidance on how to determine the most carbon efficient way of futureproofing older building stock. That is why the London Property Alliance, which represents the capital’s leading developers and property owners, published a study late last year, Retrofit First not Retrofit Only, which examines in detail how we can sensitively adapt and upgrade London’s older buildings. 

Our report includes a number of case studies that illustrate the range of interventions that can be successful, including deep retrofit, sustainable redevelopment and a mix of the two, with some original facades and structure retained as part of essentially new buildings. 

However, the worry is that a lack of clear planning guidance and an increasingly politicised debate could lead local authorities to default to a ‘retrofit only’ position, and we end up with a de facto ban on redevelopment, leaving poorly performing and carbon-intensive buildings ‘stranded’. 

The situation is becoming increasingly urgent. It is estimated that in the City and West End three quarters of office buildings will need to be upgraded by 2030 to meet sustainability standards and avoid obsolescence. Moreover, if we want to attract leading businesses to London and other UK cities it is vital we provide best-in-class, sustainable office space that supports their ESG goals and helps attract talent. Indeed, according to Knight Frank, 60% of all space leased in London in 2022 was for new or high quality refurbished space with strong sustainability credentials, and there is a clear ‘green premium’ for the best space. 

So what can be done?

Government recently published its new draft National Planning Policy Framework (NPPF), which could have been an opportunity to provide clear guidance on how developers and architects should assess the relative merits of retrofit and redevelopment. Unfortunately, it was an opportunity missed, with the proposed amends largely focused on housing delivery and little new guidance included on how developers and local authorities alike should balance the NPPF’s three principles of sustainable development; economic, social and environment and assess the relative merits of retrofit and redevelopment. 

There is expected to be a more fundamental review of the NPPF next year, but any changes to planning guidance must be accompanied by more funding for local authority planning departments. London councils alone are facing a £600 million funding shortfall in the next financial year which makes it all but impossible to provide planning departments with the skills and resources they need to make judgments in increasingly complex cases. After years of local authority budget cuts, it is critical that Government looks at this as part of this week’s Budget. 

And underpinning this, there must be a uniform methodology for measuring whole life carbon. As it stands there is simply not enough data available for developers, architects and planners to form a clear view on what approach will maximise the environmental performance of a building over the long term. 

The industry awaits the outcome of the public inquiry into the plans for M&S on Oxford Street, but we cannot rely on ‘test cases’ such as this for clarity on how to move forward – we need clear and decisive action from policymakers.  

Charles Begley is chief executive of the London Property Alliance 

Another year passes and we know that not enough progress is being made on sustainability in general and the race to net zero in particular. The COP27 United Nations Climate Change Conference in Egypt and the UN Biodiversity Conference COP15 in Montreal stressed the need for business to create action plans in order to make more progress on climate and nature. In this context, what will real estate do in 2023? What must it do? Sustain asked a number of real estate professionals for their take.

Sustain would like to hear your 2023 predictions, ambitions or opinions and will be updating this article until the end of the month. Contact us at news@sustain-re.com

Japan may become an ESG leader

Yoshiko Nakamura, vice president of Hodes Weill & Associates

The Japanese government has been slow to provide policy impetus to ESG in their domestic real estate industry. It is therefore surprising that in a country not known for embracing change, real estate managers have taken it upon themselves to make significant strides in this area.

GRESB, the leading global standard for portfolio-level ESG reporting in the real estate sector, counted 122 participants from Japan in 2022, a substantial subset of the 1,820 participants registered globally. It is not only the relatively high participation rate that is worth noting, but also the consistent outperformance since 2014 that demonstrates Japanese managers’ commitment to ESG, with an average annual GRESB score of 80 versus a
global average score of 74.2.

Japanese investment managers and developers are proactively setting their own ESG targets. Mitsubishi Estate, is targeting to adopt renewable energy in approximately 50 of their office buildings and commercial facilities by the end of fiscal 2022 and has been accelerating emissions targets set earlier. Mitsui Fudosan has similarly set targets for renewable energy use in its buildings in the greater Tokyo metropolitan area.

It will be worth watching whether ESG could become a longer-term catalyst in the Japan real estate market, with Japan assuming a leadership role for ESG among global peers.

Yoshiko Nakamura, vice president of Hodes Weill & Associates

Sustainability reporting will accelerate change

Tanya Broadfield, director of sustainability at Savills

2023 is set to be a pivotal year in sustainability reporting and disclosure. We are seeing sustainability reporting move from being largely voluntary to becoming a regulatory requirement. In particular, the effect of the proposed US Securities & Exchange Commission, EU Taxonomy, and ISSB standards will likely stretch beyond the large corporations and investment funds doing the reporting. Tighter regulation will have a substantial impact on the real estate sector. 

There is a strong focus on climate-related risks, metrics and impacts, which will help to inform investment and asset management decision making. Is the property sector ready for a future where the financial performance of an asset might be starkly impacted by changing climate? There is a risk that this explosion in complex reporting requirements will require a huge resource investment by the companies to comply. The industry needs to work together to create a clear path through these requirements and support the transition to a greener economy built upon a foundation of robust disclosure and transparency.

Tanya Broadfield, director of sustainability at Savills

Climate risk is no longer an abstract concept, but a financial reality

Will Robson, global head of real estate solutions research, MSCI
David Green-Morgan, global head of real assets research, MSCI

It has proven difficult for investors to price climate risk into their decision-making, with myriad other factors to consider when trading assets. Our study of prices paid for offices in London, Paris and Sydney, however, shows a premium has emerged for buildings that have recognised sustainability ratings versus those that have not yet achieved these standards.

While a sale-price premium related to environmental ratings has become evident in the transaction market, MSCI’s work does not yet show actual building emissions have a definitive impact on performance. Reducing a building’s emissions is how the industry will eventually effect real positive change; therefore, the greater risk to a building’s value implied by high emissions should start to be accounted for during the valuation process because of the transition risk.

The threat of write-downs to a property’s value will encourage owners to make the necessary changes to a building in order reduce its emissions intensity. It also means that when these assets come to market, they will do so at a price that accurately reflects the level of capital expenditure required to bring them up to standard.

Will Robson, executive director, MSCI Research and David Green-Morgan, executive director, MSCI Research

Moving from ambition to mission

Johnnie Wilkinson, chief executive, Greenman Group

So far it has been easy for real estate owners to say they are committed to ESG and to announce plans for what they will do. However, whilst they’re full of ambition they are often low on specifics. I think 2023 we will start to see that pendulum swing away from ambition and towards specifics. That means collecting and recording accurate data, assembling it in a useful way and using it to quantify material changes. I think there’ll be a huge amount of work around that in 2023, where we replace ambition with mission.

Johnnie Wilkinson, chief executive, Greenman Group

Increasing demand for ESG upgrades

Alex Knapp, chief investment officer, Europe, Hines

Disruption provides the opportunity to double-down on resiliency for investors and occupiers. In Europe, an asset’s ESG profile has become critical for occupiers to help meet their corporate ESG goals, to boost hiring and employee retention. We believe the current energy crisis should cause occupiers of lower-performing assets with higher energy costs to become even more cost- conscious. Tightening regulation across Europe will further drive change. This is a “must-have” characteristic of European investments.

We expect demand for ESG upgrades will only increase among occupiers and owners that lack the technical resources to deliver cost-effective solutions. In the long term, we expect intelligent and consistent investments in ESG upgrades to produce higher occupancy rates (driven by tenant demand) and more liquid assets, protecting investors from the downside of “brown discounts” and achieving stronger pricing at exit. This is a good window to consider advancing ESG investments.

Alex Knapp, chief investment officer, Europe, Hines

The pace of change needs to accelerate

Pertti Vanhanen, Managing Director Europe at Cromwell Property Group

Investors in the property sector have definitely woken up to the risks associated with not achieving significant changes to the sustainability of our asset class. It’s now one of the first questions in any investor meeting. This heightened awareness and a greater alignment of interests between investors, managers and occupiers is going to be vital if we are to achieve the changes that are required to reach net zero by 2050. It’s great to see how seriously especially younger professionals focus on ESG and impact investments. Not only does the pace of change need to accelerate, but also the willingness to adopt new solutions and materials such as wood and other technologies if we’re going to get there in time. I hope that 2023 marks a step change in our sector’s approach to this very global challenge.

Pertti Vanhanen, Managing Director Europe at Cromwell Property Group

Occupiers to be more engaged on sustainability

Michael Morris, CEO of Picton Property Income

We think 2023 is going to be a year where occupiers become much more engaged on sustainability issues. Rising energy costs and an increasing need for them to be seen to reduce emissions is changing the conversation.  Leasing activity will be focussed on good quality assets that use less energy and have lower running costs.  At Picton, we will be focussed on our ‘renewable’ roll out, making further progress against our net zero pathway and more widely looking to mitigate climate change risks. Hopefully next year the sustainability conversation within our sector goes further than just minimum energy efficiency compliance.

Michael Morris, CEO of Picton Property Income

Double down on cutting energy use

Vicky Cotton, ESG director at Workman LLP

The current energy cost crisis stresses the need to double down on energy reduction. But what’s not measured can’t be effectively managed, so access to both landlord and occupier data has never been so significant. Armed with a more accurate grasp of exactly how whole buildings are performing, it’s possible to work with occupiers to drive down their own costs. This is also where smart technology, energy audits, and a phased upgrade of plant and systems to improve efficiency, will have a significant impact on cost reduction.

Energy prices are unstable, and markets are likely to remain volatile well into 2023, so the focus must be on both short- and long-term reduction strategies. The payback timeframes from PV (solar panel) installations are expected to fall significantly – and could even halve against the increased grid energy costs. Reducing reliance on gas can mitigate exposure to the risks of spikes in the energy market and utilise more clean energy, while helping to achieve net zero carbon emissions.

Vicky Cotton, ESG director at Workman LLP

Reuse materials to accelerate decarbonisation

Mat Lown, head of ESG and sustainability at TFT

In order to progress the sustainability agenda in 2023, the built environment sector must embrace the need to decarbonise. In order to do this we need a cross-industry effort to go further in understanding and delivering material reuse, extending the life of greater quantities of building materials than at present.

Not only is reusing materials less carbon-intensive, but it is also more commercially viable to minimise waste in the construction process.  As an industry, we need to do more to help developers identify reusable materials at the time when a building is being considered for repurposing, auditing buildings for reusable materials as a matter of course.

In addition, we need to see strong government leadership to support a wider decarbonisation agenda. Government can provide a crucial means of closing the gap between those investor and occupier organisations which are leading the way, and industry stakeholders which are either unaware or unengaged with decarbonisation.

A combination of stronger incentives and regulation will be essential to encourage a wider set of industry stakeholders to take action. We are currently working with the British Property Federation on recommendations aimed at ensuring that government policy on this pressing issue is more effective in the future.

Mat Lown, head of ESG and sustainability at TFT

Brussels-listed developer Atenor has secured planning consent for its first UK project: the “deep retrofit” of Fleet House near Blackfriars Station in the City of London.

The project will retain more than two-thirds of the existing structure in order to reduce the embodied carbon of the 77,500 sq ft (7,200 sq m) project.

Designed by HOK, the rejuvenated building will prioritise user wellbeing through WELL principles and biophilic design, as well as providing public amenities, including a ground floor pub.

Eoin Conroy, country director UK for Atenor, said: “Our approved plans for Fleet House supersede an earlier scheme that would have seen the existing building demolished and a new one built from scratch. Instead, 72% of the building’s structure will be retained, emphasising our belief that the adoption of sustainable practices at the design and construction phases is both the right thing to do and will make this building more appealing to future occupiers.”

The importance of sustainability alongside wellbeing in the workplace has taken centre stage over the last few years, and as our understanding of how buildings impact both climate change and our health grow, so does occupier demand for better spaces in this regard. As a result, developers are pouring more resources than ever before into creating high performing, welcoming and supportive environments.

There is a commercial angle here too. Investors and developers are benefitting from the link between wellbeing and sustainability and real estate asset value, in both leasing and sale terms. These facets of a development are now essential to attracting investment and occupiers as well as maximising longevity and sustainability.

Occupiers and indeed their employees have been a major driver in this process. They are increasingly more rigorous in assessing the buildings they occupy and are demanding the highest ESG standards and flexibility to provide an enhanced experience. A range of multi-use spaces that can cater for everything from private work to relaxation and collaboration, including access to nature, are now a prerequisite.

It’s not just about amenities either. Employers have embraced their pastoral role and want their teams to feel cared for, with a sense of belonging and community and a focus on their physical and emotional wellbeing. It’s important for retention and attraction, but also for their employer responsibility and brand reputation. Employees in turn want to be inspired and encouraged to go to the office.

That said, while we are seeing a lot more businesses commit to wellbeing and sustainability targets, there is still a lack of creative expertise and knowledge; however, we expect this to change with rising understanding and adoption of smart technology, real-time data use, efficient heating solutions and biophilia.

Our 150,000 sq ft 11 Belgrave Road redevelopment in London Victoria is a good example of what a workplace of the future will look like. What does this mean in practical terms? The process of making improvements to sustainability and wellbeing is a hugely detail-led approach. Measures like preparing building materials off site, prioritising non-toxic materials such as timber and stone, as well as low carbon concrete and steelwork, all reduce an asset’s carbon footprint.

Next, the internal environment. Intelligent heating and cooling systems deliver thermal comfort alongside huge reductions in peak demand. Measures like passive ventilation remove fine dust along with carbon filters to remove carbon dioxide and, together with display screens to inform occupants of energy use, empower occupants to better manage their own carbon footprint while creating a better work environment. Tuning a building’s indoor LED lighting to circadian rhythms as well as adjusting the natural colour temperature of any particular time of day also keeps occupants comfortable.

Biophilic design is also key. We have a 2,600 sq ft garden on the ground floor of 11 Belgrave Road – re-assigning prime lettable space like this would have been unheard of, but it’s made our scheme more health and sustainability conscious. Pollution-filtering plants, such as ivy, contribute to the removal of toxic pollutants while helping to regulate indoor building temperature.

Finally, placing workstations in proximity to windows or an atrium will improve lighting, and with smart lighting and solar controlled glazing, can optimise energy savings while improving occupier wellbeing.

Technology like smart apps can also optimise digitally-enabled services to tenants, such as bike booking and charging along with smart lockers at on-site gyms, both reducing the individual carbon footprint of visitors, while also supporting them in their fitness goals.

Apart from higher asset value, better performing buildings are inherently more future-proofed and ready for regulatory changes. They will be at the forefront of the workplace revolution and drive environmental and social value too, ensuring the real estate sector plays its part in a more sustainable world for generations to come.

Ilyas Aslam is chief operating officer at real estate private equity investment and advisory group Quadrum.

AXA IM Alts has acquired a Rotterdam office building for a sustainable redevelopment and refurbishment project.

The investment manager acquired the 270,000 sq ft office building, located on Coolsingel in the centre of the city, from ABN AMRO, which will also take around 33,000 sq ft of space in the completed project.

AXA IM Alts and developer Provast retain much of the building’s structure in the redevelopment while  adding 64,500 sq ft of additional lettable floor space.

The redevelopment (rendered above), which will begin in Q3 2023, is targeting a BREEAM ‘Excellent’ rating, an A++++ energy label and WELL Platinum readiness.

Marc Kramer, head of development Benelux, at AXA IM Alts, said: “Demand continues to rise for high-quality office space with market-leading sustainability credentials. 

“In Rotterdam, the demand for this best-in-class space has been accelerated by the rapid growth of the city’s young professional population, which is increasingly attracting occupiers, particularly in the tech and financial services sectors, to workspace in Rotterdam’s CBD.”

Last month’s UK mini budget resulted in the type of market volatility usually only seen after a black swan event. What has already faded from memories was the underlying objective of the fiscal measures announced – to boost UK productivity.

This brings us neatly onto the role of the office in a post-Covid world. A recent Microsoft survey found that 85% of bosses say hybrid work makes it hard to be confident that employees are being productive.

Employer space requirements have been evolving for a number of years, tracking the shift from the office no longer being purely regarded as a cost centre but a revenue generator.  The pandemic has crystallised the intertwining of space and talent and productivity, with a resulting knock-on effect for investors.

The market polarisation in favour of smart Grade A green offices is widening every month, with high quality services and flexible environments adapted to new working trends.

Recognising this, our green office strategy is about creating new or refurbished resilient offices focused on “4Ss” – meaning buildings which need to be strategically important to occupiers, safe, sustainable and smart assets with building management systems. These intercorrelated pillars are essential as employers and employees demand more productive and more inspiring places to work from.

It starts with smart. Smart building technologies can deliver the above in many ways, from enabling transparent, data-driven building management to creating a compelling, frictionless experience for employees, as well as visitors. And smarter buildings are safer buildings, better capturing who is in them, how they are used, with healthy air management systems and how well they are functioning.

For cities to remain relevant, mobility will be key. Employers across the knowledge economy will have to work hard to persuade in-demand employees to endure a daily commute to and from the office. A building is strategically important if it provides an environment and the ease of access for employees, counterparties and customers to come together in a way which boosts productivity and the culture. Only offices with the right accommodation near to good or newly proposed infrastructure will stack up from an underwriting perspective. Thus, our first asset, White Rose Park near Leeds, UK, will benefit from a new railway station.

The effects of climate change – or rather, climate crisis – now underpin every investment decision. How people can live more sustainably and in harmony with the world's eco-system is a priority. The office sector sits at the very heart of this. 

The link between smarter and sustainable buildings is clear – using technology to maximise energy efficiency and allow buildings to work more harmoniously with the environment in which they are situated.

We are heading for an unprecedented wave of obsolescence across the European office sector. Local regulatory pressure and increasing demand for green offices implies a significant portion of European office stock may soon be obsolete, resulting in a growing need to create futureproof office assets in winning cities.

The evidence is clear. The supply demand imbalance and regulatory pressure is driving rental premiums for green office space, ranging from an average of 5.4% in Europe, 10% in the UK and rising to 22.2% in Germany’s Big 7 cities. The investment market is witnessing average sales premiums generated by a green certification of 11.5%.

As the Fed, BOE and ECB hike rates, so financing costs are set to define the office investment market in the near term. Available data shows that green assets can command a cost of debt approximately 25 basis points lower than brown assets, with an expectation that this will only increase.  As yields move out, so smart financing – using sustainable debt at lower cost of capital – will also be a key cog in generating returns.

Despite the recessionary backdrop, there remains a war for talent, and the benefits of office working will only become more apparent as the pandemic recedes. This paradigm offers a unique opportunity for those owners and managers with the value creation expertise, to deliver the new generation of green offices in winning Western European cities, transforming assets from brown to green.

Duncan Owen is CEO of Immobel Capital Partners

The real estate industry has been wrestling with its carbon footprint and how to reduce it for some time. However, until recently, the focus has been exclusively on emissions from building operations, such as lighting, heating and cooling.

But operational carbon emissions are only half the story. The construction of any building generates carbon. Making steel, glass and concrete results in carbon emissions. The transport of materials to and from a construction site and the work involved in erecting a building all involve emissions. It is estimated that 11% of total global carbon emissions come from building construction and materials.

Now the industry is beginning to look at the whole life cycle of a building to assess its emissions and it is driving changes in behaviour. Peter Epping, global head of ESG at Hines, says: “We need to be careful about which buildings we are knocking down and whether the benefit in terms of reducing operational carbon over time or other benefits are worth the embodied carbon of building new. No matter how green a building is touted to be, you still spend at least 30 years of operational carbon in its development.”

As building operations becomemore efficient, the embodied carbon in a building becomes more important. The longer a building can be preserved, the more the carbon involved in its creation can be ‘amortised’.

Billy Grayson, executive vice president, centres and initiatives, at the Urban Land Institute, says: “According to most estimates, embodied carbon accounts for as much as half of a buildings’ total carbon emissions over its lifetime. If we can develop strategies to use lower-carbon building materials and construction strategies, we can make significant progress in reducing overall emissions from the real estate sector.”

Projects that attempt to minimise embodied carbon can benefit from green building certification. Many of the major certification systems, including LEED, BREEAM and EDGE, consider embodied carbon.

Earlier this year, a pioneering low-carbon certification programme for real estate was launched in Europe, garnering support from real estate investors such as Ivanhoé Cambridge and Generali Real Estate, as well as the French BBCA association.

Like most exercises in making real estate more sustainable, measuring and assessing a building’s total carbon emissions over its projected life can help developers and investors judge its impact. A whole building life cycle analysis (WBLCA) attempts to account for all carbon sources present throughout a building’s life. Such analysis – while obviously requiring a certain amount of speculation – can give a more balanced picture of a project’s impact and might even sway decisions on whether to embark upon it.

To reduce embodied carbon, the real estate industry needs to embrace the four ‘Rs’: reduce, reuse, replace and recycle, says Grayson. Reducing the raw materials and energy used in the construction process will reduce embodied carbon. This might involve using modular construction to reduce waste and transport emissions, or producing materials on site. Of course, simply creating fewer buildings and instead refurbishing existing stock naturally reduces the use of materials.

Reuse could involve using the materials from the construction of one building for another, or they could be recycled. “Recycling all construction waste and using recycled materials for construction can also have a positive impact on reducing embodied carbon,” says Grayson. Developers are beginning to replace carbon-intensive building materials with lower- carbon or renewable materials, such as timber, lower-carbon concrete and recycled steel.

Such considerations are increasingly tipping real estate investors into refurbishing and improving existing buildings rather than demolishing them and building afresh. Grayson says: “Usually, refurbishment or repurposing of obsolete properties is better than redevelopment, from an embodied carbon perspective.”

However, refurbishment is not always the best option: it might be impossible for a building to be brought to the required specification, for example. As construction becomes lower- carbon, the balance may also swing back in favour of new buildings, especially if the building they replace can be recycled.

Using the four Rs to reduce embodied carbon should also not come at a cost; using less energy and materials in a project tends to mean lower costs. Furthermore, lower-carbon materials are often similar in cost to their standard equivalents, the ULI’s Embodied Carbon in Building Materials for Real Estate report argues. New technology is emerging to help the real estate industry reduce embodied carbon. 

Epping says: “It is very encouraging to see considerable innovation in the field of low-carbon construction, whether that is low-carbon cement, low-carbon steel or other materials.”

For example, advances in structural timber are making it a practical solution for large scale commercial buildings, even lofty skyscrapers, while solutions are emerging for concrete which are not just lower-carbon but carbon negative, as the making of the concrete involves storing carbon dioxide.

Throughout a building, the choice of materials will affect its final embodied carbon footprint. “Everything down to the choice of carpets can make a difference. And that’s why we were pushing really to getting environmental product declarations (EPDs) for everything we use in a building, so we can have a ‘carbon P&L’,” says Epping. Environmental product declarations will allow purchasers to weigh up the environmental impact of a product.

Embodied carbon could be further reduced by employing circular economy techniques. The circular economy refers to the constant reuse and recycling of materials to reduce waste, carbon emissions and pollution. This might involve reuse of buildings or the recycling of existing materials into new buildings.

Grayson says: “Circularity teaches us [that] any industry’s waste products should be a feedstock for other industries’ processes, and that we should figure out ways to reduce lifecycle environmental impacts by efficiently integrating different industries in the efficient use, reuse, and recycling of materials.

“If buildings were built from rapidly renewable materials and designed for adaptive reuse and disassembly, it would significantly reduce their life cycle greenhouse gas impact and contribute to the circular use of materials as feedstocks for future buildings and other beneficial manufacturing processes.”

Part of the challenge of reducing embodied carbon is in persuading people to consider it, how to measure it and how to reduce it. “We have seen that introducing this topic into the conversations with architects, designers and contractors means people get up to speed quite fast and act smarter. If you had mentioned this topic two years ago to anyone, they would probably just have shrugged their shoulders and looked for someone else to work with,” says Epping.

Hines has contributed to the debate by publishing an Embodied Carbon Reduction guide, which explains the topic and gives some detail on how it might be addressed by the real estate industry.

And it must be addressed, not least due to the existing and future legislation which is expected for the sector. For example, the Netherlands’ commitment to economic circularity by 2050 involves a requirement that the building sector reduce its raw materials use by 50% by 2030. Since 2013, all new buildings have been required to conduct a whole building life cycle analysis.

As noted in Sustain’s May issue, a number of new-build projects in cities across the world have been rejected, due, in part or whole, to the carbon emissions associated with their construction.

The major push factor for the real estate industry, however, is likely to be the wider implementation and higher cost of carbon taxes. Some 40 countries and more than 20 cities, states and provinces already use carbon pricing mechanisms, with more planning to implement them in the future, in order to shift the burden of climate change onto those who are responsible for it.

For example, in April, Singapore announced it would be revising its carbon tax and raising it incrementally to change behaviour. From 2024, large emitters in Singapore will have to pay S$25 (US$18) for each tonne of carbon dioxide equivalent emitted, increasing to S$45 in 2026 and 2027, and eventually to between S$50 and S$80 by 2030.

Once carbon taxation expands to more countries, developers will have a strong financial incentive to take action and reduce embodied carbon.

Hong Kong office landlords need to embrace ESG to compete, claims Colliers. 

In a new report, the property adviser said Hong Kong Grade A office rents have fallen 20.6% since early 2019, with the market battered by political protests and the effects of covid restrictions. 

Hong Kong is one of only a few locations still insisting on quarantine, which is putting off business and leisure visitors. “For multinational corporations, Hong Kong becomes less favourable for the location of regional headquarters,” the report says.

To add to the city’s woes, Colliers forecasts 15m sq ft of office space hitting the market between 2022 and 2026. With so much new space underway, existing assets without strong ESG characteristics risk being stranded. Adopting ESG best practice reduces the transition risks related to future government policy.

More sustainable offices are also preferred by tenants. Colliers research shows that sustainability-certified buildings outperformed in terms of rents and vacancy from March 2019 to date. 

Colliers suggest that office landlords use green financing to help them retrofit existing buildings to make them energy efficient and that they use green certification such as LEED or BEAM Plus, Hong Kong’s local certification regime.

For owners of existing buildings, Colliers recommends:

When you think of green buildings you might be inclined to think of an electrified modern office tower, rather than a multi-let industrial (MLI) estate, however a whole life cycle approach to this sector shows it can be made as sustainable as any. 

The real estate industry is just beginning to take account of embodied carbon, that is the emissions which come from construction and renovation work, as opposed to building operations. Embodied carbon can amount for up to half an asset’s lifetime emissions, depending on how much maintenance is required.

Whilst all real estate requires almost constant maintenance through its lifecycle to remedy wear and tear from use and environmental degradation, MLI property requires relatively little, compared to say an office or shopping centre. 

Most of an industrial building is made of long lasting and hardy materials, such as the concrete slab which makes up the floor or yard (50 years lifespan) and steel exterior cladding (typically 30 years lifespan and can be easily replaced).  With no lifts, air conditioning or soft furnishings, this makes them cost effective to maintain with little additional embodied carbon during their lifespan.

There is much that can be done to make an existing industrial asset more sustainable. The common methods we use to improve energy efficiency in our portfolio are new LED lighting (cutting lighting related emissions by circa 80%), rooftop solar panels, removing gas heaters, installing air-source heat pumps in the offices and adding more insulation.

Our own research suggests the most impactful way of improving energy efficiency is by moving to LED lights, followed closely by installing solar panels.  We recently analysed the Energy Performance Certificate (EPC) scores of 136 MLI units, which showed that LED lights improved the average EPC score by -50 points, whilst solar panels improved it by -40 points, either enough to take a typical Grade D rated unit to a Grade B. 

We also found that every unit we assessed was capable of being economically upgraded to meet all future and proposed legislation. The average investment required was £6 per sq ft across the sample, which equates to around 7% of current net asset value (NAV).  Excluding the cost related to the installation of solar panels (which can be a profitable investment in its own right), the remaining cost to comply with all current and proposed environmental regulations until 2030 averaged £2.70 per sq ft, reflecting an investment of just 3.5% of average NAV (or around five months’ rent). 

This means that it is both economically viable and feasible to upgrade MLI buildings to meet more stringent environmental standards, whilst further extending their lifespan and improving their lifetime carbon emissions in the process.

The most sustainable buildings are the ones which never go out of fashion.  MLI is one of these sectors, as the average occupier has always and will always be looking for the same thing – clear, dry, secure space with good access and a good local labour market.  

Taking a whole life cycle approach to MLI shows how sustainable it can be and also demonstrates what can be done to make older real estate assets greener for longer.

Julian Carey is managing director at Industrials REIT.