Sustainability

As the push to net zero accelerates in Europe, failure to implement changes to accommodate these goals could soon become a business liability. Look for occupiers, developers and investors to seek closer alignment in their ESG priorities, goals and timeframes.

Key Takeaways

1. Decarbonising the built environment plays an increasingly key role in climate change mitigation strategies. Occupiers, developers and investors are likely to seek further urgent alignment in their priorities, ESG goals and timeframes.
2. With carbon-intensive assets at risk of value depreciation, we expect growth in incentives and strategies for financing retrofit and refurbishment. The transition towards renewable energy sources should also accelerate.
3. Leveraging technology and digital solutions to automate data collection is becoming essential, to overcome deficiencies in the availability of quality data. Social value of real estate, biodiversity and Artificial Intelligence (AI) are expected to be some of the most important emerging trends in the year ahead.

Market preferences evolve as awareness of climate change grows

Asset repositioning creates opportunities

Net zero commitments, coupled with structural change in occupier fundamentals, will increasingly lead to occupiers targeting assets with good sustainability features and/or better energy performance. More importantly, occupiers show a willingness to pay rent premiums to switch to green energy, as well as for assets with sustainability certifications (Figure 24).

However, occupiers’ ability to deliver on their commitments will be dependent on the availability of adequate real estate. As some assets are more costly to decarbonise, investors will continue to view the capital expenditure as an additional risk to investment returns. However, investing in retrofitting assets that do not meet occupier requirements creates the opportunity to benefit from repositioning early in the transition.

Focus on renewable energy sources intensifies

By 2030, the European Commission expects solar energy to be the largest energy source in the EU, with more than half coming from rooftops. Incentives and strategies for financing renewable energy transition are therefore expected to be increasingly introduced in European markets.

Besides addressing the challenge of energy security and energy poverty, solar energy will contribute to reducing greenhouse gas (GHG) emissions and therefore limit real estate assets’ contribution to climate change. From an occupier perspective, solar systems will be a way to reduce the cost of occupancy. For investors and property owners, installation of on-site solar energy production will provide opportunities for asset value uplift (CBRE, 2023).

Figure 24: Rental Premium for Certified Offices

Source: CBRE Research

Figure 25: Date Set for Achieving Organisation’s Net Zero Pledge (Continental Europe)

Source: CBRE Research

Access to quality data is transformative

Further digitisation of data collection and analysis processes will enhance stakeholders’ visibility of the costs and benefits of sustainability initiatives and therefore, lead to better-informed decisions. The ability to demonstrate a return on investment and increased profitability linked to sustainability initiatives will support investors’ and property owners’ efforts to protect the value of their assets. Going forward, technology will increasingly be leveraged at scale, giving a competitive advantage to early adopters.

Three emerging trends

Social building features that focus on tenant benefits are expected to increasingly affect the value of real estate transactions.

Following the adoption of the Nature Protection Law, one of the core pillars of the European Green Deal, the role of biodiversity in creating environmental, economic and social value for real estate will come to the fore.

Finally, Artificial Intelligence (AI) will add another layer to the transformation of real estate. Data centres, being the critical infrastructure behind the digital economy, have the potential to grow rapidly. However, the sustainability of power grids will also need to be secured.