Page 1

SUSTAINABILITY, MEET

SUSTAINABLE PROFITABILITY


“Why sustainability, the new culture of work and green strategies are the only way forward in real estate” If you’re wondering whether climate change will

You’ll want to play your part in fighting climate

have an impact on your real estate portfolio, you’re

change, all the while making healthy investment

asking the wrong question.

decisions. And that means creating valuable spaces that help achieve sustainable cities, with room for

The real question is not whether, but how climate

quality buildings that combine low environmental

change will affect your real estate portfolio. Why

impact, health, wellbeing and safety.

is the cultural turn in how we work and live so crucial when it comes to thinking about real estate

There’s a real need to balance people, the planet

sustainability? How will you prepare your current

and profits, and the real estate industry is at the

assets and create a future portfolio that can

forefront of creating solutions that work for all

withstand, help solve and even benefit from the

stakeholders – today and in the future. Let’s take a

challenges ahead?

closer look at the possibilities that lie ahead.

Answering these questions requires insight into both the bigger picture and the small changes needed to turn challenges into opportunities.


TABLE OF CONTENTS INTRODUCTION

6

WHAT EXACTLY IS SUSTAINABILITY

7

CLIMATE SCIENCE IN A NUTSHELL

8

WHAT’S THE FUSS

9

SUSTAINABILITY

10

GREEN INVESTMENTS

12

GREEN MONEY

12

CERTIFICATION AS A FRAMEWORK

14

CONCLUSION

17


Cushman & Wakefield

INTRODUCTION Changing how we work, live and build Climate change, disrupted environments and rapid changes to our ecosystem are challenges that need to be addressed head-on. If we want our companies to prosper in the decades to come, we’ll need to change the way we manage our real estate portfolios. Sustainability needs to be at the core of every decision we make. New parameters will influence the way we look at acquisitions and property management. Assets’ level of climate resilience will determine their profitability in the future. Investments in climate resilience and the sustainability of real estate will be inevitable due to stricter regulations, rising energy costs and higher tenants’ demands. Sustainability, however, is about more than just the environment. It’s just as much about people. Businesses are on the lookout for more honest ways of working, with an emphasis on wellbeing and a healthy work environment for their workforce. After all, we spend most of our times indoors, be it at home or at work. Apart from adapting portfolios and assets to climate change and the associated societal changes, this cultural (r)evolution deserves our attention too. The way we look at work, private time, mobility, professional fulfilment and other key arguments that influence career choices is becoming fundamentally different from what the old economy was used to. What’s more, taking measures to mitigate the impact of climate change may ultimately improve our overall wellbeing as well, making sustainability in real estate a win-win-win for clients, owners and society alike.

6


WHAT EXACTLY IS SUSTAINABILITY And what’s a sustainable real estate investment? Your building is sustainable when:

Work Environment Your occupants can enjoy a healthy work environment that increases their wellbeing, while at the same time positively influencing your tenants’ profitability

Natural Environment The natural environment is minimally impacted or not impacted at all by the building’s creation and existence

Source: partly drawn from: https://www.triodos-im.com/sustainable-real-estate

Surroundings It adds value to its immediate surroundings and contributes to sustainable urban planning

ROI It has the potential to create a solid return on investment


Cushman & Wakefield

CLIMATE SCIENCE IN A NUTSHELL What are we talking about at the moment First, let’s get our facts straight. What’s the consensus

There is broad consensus that climate change will

in climate science at the moment, and what tangible

continue throughout this century and beyond. Its

impact is climate change going to have? In other

magnitude will depend primarily on global gas

words, what’s the outlook for the world in which

emissions and the sensitivity of the Earth to those

businesses will be operating in the near future?

emissions.

Today, we can already experience the concrete effects

Depending on climate policy today and in the future and

of climate change on the environment. The loss of

its impact on global emissions, a wide range of effects

sea ice, the accelerating rise in sea levels and more

will manifest worldwide. Temperatures will continue to

intense heat waves had been predicted and are now

increase, droughts and heat waves will become more

occurring.

common, and sea levels are bound to rise.

Did you know? Construction and real estate operations account for 30% of global greenhouse emissions

These climate changes will go hand in hand with

Preparing your real estate for a new climate reality,

economic and societal changes that are quite difficult

with all the rules and regulations it entails, while at

to predict at the moment. However, as a responsible

the same time meeting next-generation workplace

investor would be wise to make investments and asset

demands is crucial to the profitability of your assets.

decisions with an eye on the long term.

The challenge is tremendous: construction and real estate operations account for 30% of global greenhouse emissions. Now let’s take a look at some of the solutions.

8

Source: https://climate.nasa.gov/effects/ - https://www.ipcc.ch/sr15/ https://www.unenvironment.org/explore-topics/resource-efficiency/what-we-do/cities/sustainable-buildings


WHAT’S THE FUSS? There’s always insurance - right? Some might argue that risk mitigation is merely a matter of acquiring the right insurance policies. But you should never mistake head-in-the-sand policies for business tactics. First of all, climate change risks aren’t the same as natural disaster risks. In the long run, insurers will calculate climate risks using advanced technological models, with higher premiums and volatile costs as a result. Some assets may even become uninsurable, as the industry itself says a four-degree increase in global temperatures would altogether make it impossible to insure against climate change-related risks. Insurance strategies only address physical risks, and not transitional risks or the loss of liquidity when your assets drop in value due to substandard climate change resilience. You will want to invest in properties that are fully equipped to resist climate-related risks and events in the future, and adapt your portfolio accordingly. But what exactly does that mean?


Cushman & Wakefield

SUSTAINABILITY Get your current portfolio up to speed In case you’re still wondering, now is the time to take action. With governments issuing roadmaps and passing regulation to fight the consequences of climate change, the markets are transitioning as well. Delaying crucial investments and adjustments to assets could ultimately put your business at a

...BY 2050 WE’LL NEED TO HAVE CUT TOTAL CO2 EMISSIONS IN THE BUILDING INDUSTRY BY 77%. IT’S

competitive disadvantage that might set you back indefinitely.

QUITE THE CHALLENGE, BUT THE

Buildings are now also subject to strict standards following the

JUST AS GREAT.”

POTENTIAL IMPROVEMENTS ARE

Paris Climate accords, and governments will undoubtedly turn to the real estate sector to help meet these. The industry does have one of the highest carbon footprints, accounting for 30% of annual global greenhouse gas emissions, and consuming up to 40% of the world’s energy.

According to the commitments made in the Paris Agreement, by 2050 we’ll need to have cut total CO2 emissions in the building industry by 77%. It’s quite the challenge, but the potential improvements are just as great.

Source: https://www.unepfi.org/publications/ investment-publications/property-publications/sustainable-real-estate-investment-2/

10


The Green Whitepaper

Avoiding the inevitable may lead to liquidity concerns in the future, when investors will increasingly make decisions factoring in possible climate change risks – making poorly adapted properties significantly harder or even impossible to sell or let. That is why improving your current portfolio is essential. Let’s zoom in on what’s possible:

DESIGNING MORE

RETROFITTING EXISTING ASSETS TO

ENVIRONMENTALLY

IMPROVE ENERGY, WATER

FRIENDLY BUILDINGS

AND WASTE SYSTEMS

INTEGRATING THE POSSIBILITY TO ENABLE MIXED WAYS OF WORKING IN YOUR BUILDINGS

COMBINING ENERGY-EFFICIENT MEASURES WITH REFURBISHMENTS THAT IMPROVE HEALTH, WELLBEING AND PRODUCTIVITY ON THE WORK FLOOR

11


Cushman & Wakefield

GREEN INVESTMENTS Financing solutions Bringing old buildings up to speed with the latest standards and the expectations of ever more demanding tenants necessarily requires investments. Fortunately, investing in measures that ward off the consequences of climate change often goes hand in hand with workplace improvements that attract modern employers who require healthy, productive workplaces geared towards wellbeing. But those positive outcomes won’t get you the funds to make the necessary alterations and refurbishments. Of course, adapting your existing portfolio to mitigate the risks of climate change costs money. More and more green loans are being introduced, however, offering discounts on financing if the

Green

bonds

are

the

other

option

these days, with annual green bond issuance to reach US$ 1 trillion by 2020. With investors looking to improve the sustainability rating of their portfolios, these offer landlords a way to finance such capital expenditure at an attractive rate.

borrower commits to making environmental improvements to their assets. With the right partner by your side, you’ll be able to negotiate the best terms on your green loans and put together an application that makes a solid case for your sustainable project.

GREEN MONEY Let’s talk investment strategy Adopting an asset management strategy that factors in the vital challenges of climate change is crucial in order to make sound and futureproof investment decisions. However, when managing your assets and investment strategies with an eye on sustainability, you’ll need to balance people, profits and the planet all at once. So, where does your primary focus need to lie? You’ll need to juggle several improvement areas at once, since they are all intertwined.

In many ways, sustainability improvements will increase the overall work environment at the same time. There’s a direct link between soft landscaping to improve a building’s sustainability and mental health improvement on the work floor. But protections against physical climate change

are

somewhat

from

measures to improve a healthy work environment, creating a tension between imperatives: wellbeing,

improving mitigating

health

physical

and

climate

risks, and minimizing capital expenditure and running costs.

12

different


The Green Whitepaper

Feel a headache coming on? Well, that’s nothing compared to the one waiting for you down the line should you choose not to act. Not taking any action places your assets at direct risk – from government regulation, loss of liquidity, or both. That means your investment strategy for your portfolio needs to put the emphasis on measures that improve health, wellbeing and climate change resilience all at the same time When acquiring properties, investors would be wise to consider pre-empting climate risks by adopting an asset management strategy that tackles both assetlevel resilience and city-level resilience to climate change-related threats.


Cushman & Wakefield

CERTIFICATION AS A FRAMEWORK If you’re looking for a framework for implementing efficient measures to increase sustainability and provide healthier workplaces, certification roadmaps might come in handy. However, if you’re looking to certify your building only for the sake of putting up a plaque on the front door, you’re doing it all wrong. Certifications are a smart way to leverage data-driven strategies to promote health, wellbeing and environmentally friendly workplaces. The LEED and BREEAM certifications are internationally recognized and can serve as a de facto building code for sustainable buildings, providing a uniform set of design and construction standards to follow. There’s also the WELL Building Standard, which is seen as representing the Second Wave of Sustainability as it brings together best practices in design, medical and scientific research to align objectives in both sustainability and workplace optimization. These certifications are continually being improved based on the latest research and insights in the industry, making it a tremendous opportunity for investors, builders and owners to improve their assets following the highest standards in workplace wellbeing and sustainability. And of course, using these certifications as a framework and obtaining the certifications themselves will earn you a unique selling proposition for future tenants and occupants. Certified buildings maintain capital value for investors more easily.

14


The Green Whitepaper

Some definitions:

LEED LEED (Leadership in Energy and Environmental Design) is an ecology-oriented building certification program run under the auspices of the U.S. Green Building Council (USGBC). LEED concentrates its efforts on improving performance across five key areas of environmental and human health: energy efficiency, indoor environmental quality, materials selection, sustainable site development and water savings. Source: https://searchdatacenter.techtarget.com/definition/LEED-Leadershipin-Energy-and-Environmental-Design

BREEAM BREEAM

(Building

Research

Establishment

Environmental

Assessment Method) is a sustainability assessment method that is used to masterplan projects, infrastructure and buildings. Launched in 1990, by the Building Research Establishment (BRE) it sets standards for the environmental performance of buildings through the design, specification, construction and operation phases and can be applied to new developments or refurbishment schemes. Source: https://www.thenbs.com/knowledge/what-is-breeam


CONCLUSION A holistic approach to sustainability As we stated at the start of this Whitepaper, sustainability is about more than mitigating the effects of climate change: it’s about creating healthy environments that balance people, the planet and profits all at the same time. Our industry’s responsibility is as great as the opportunities that lie ahead.

PLANET

PEOPLE

PROFITS

In the years to come, starting

Improving

today,

do

your real estate assets to the

portfolio

buildings

challenges raised by climate

strategy to match this new

resource

change and the new ways

reality will open up countless

consumption, while enhancing

of working set to define our

opportunities. By acting today

human health and wellbeing.

economy in the decades to

and laying the groundwork

The two are fully intertwined,

come, with a strong emphasis

for a futureproof and healthy

giving

opportunity

on health and wellbeing, does

real estate portfolio, you will

to shape the future of our

come at a certain investment

ensure

cities and to engage in urban

cost.

doing

from tenants and compliance

planning that turns the best

nothing, however, will be far

with government standards.

practices

greater.

Certification frameworks can

well that

investors to

create

minimize

us

the

set

sustainability frameworks reality.

would

out and

into

within

The

and

cost

adapting

of

Upgrading your real estate and

maximum

investment

turnover

wellness

be helpful in the process, and

concrete

will most likely be another trump card for maintaining and creating capital value.


CONTACTS KRIS PEETERMANS* MRICS Partner Head of Valuation & Advisory T: +32 475 73 67 07 Kris.peetermans@cushwake.com

cushmanwakefield.be Š 2019 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

Profile for Cushman & Wakefield Belgium

Sustainability, meet sustainable profitability  

If you’re wondering whether climate change will have an impact on your real estate portfolio, you’re asking the wrong question. The real qu...

Sustainability, meet sustainable profitability  

If you’re wondering whether climate change will have an impact on your real estate portfolio, you’re asking the wrong question. The real qu...