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Driving value in real estate through sustainability

The growing relationship between sustainability and tangible value

Sustainability initiatives in the real estate sector have often been seen as a leap of faith – costs were evident but the value was intangible. But there is growing evidence to support the commercial value of sustainability.

For many early adopters within the real estate industry, the value of being more sustainable could only be linked to intangibles such as brand reputation, company purpose or moral imperative.

However, while intangible value can have a real effect on bottom lines, there is now increasing evidence that sustainability in real estate offers tangible values as well. For example, more sustainable buildings, or at least those that are certified as being sustainable, can rent faster, at higher rents, and attract higher prices relative to those that aren’t.

Those who have pioneered sustainability initiatives as a way of driving value are now reaping the benefits.

A wider stakeholder focus

Part of the increasing recognition of the value of sustainability has come as businesses have moved away from a narrow focus on shareholder value to a wider focus on value for all stakeholders. For the real estate industry, this includes renters and occupiers, shareholders, investors, the wider community and the planet.

The first step in identifying value is recognising all of a company’s stakeholders and their areas of interest. Consider commercial tenants for example: we’ve seen significant changes in the customer base, demographics, outlook and duration of their commercial view. Office landlords no longer simply sit down and negotiate with the finance director. They engage with an array of business stakeholders, from FDs to people directors, who want to discuss how the tenant will use the space day-to-day, how that space can help them attract and retain talent, and how it speaks to the values of their organisation.

Of course, investing in sustainability still has to make commercial sense. That’s why it’s important to recognise both tangible and intangible value across the spectrum of stakeholders. Identifying all stakeholders and their interests can help real estate businesses to assess the real commercial value of sustainability initiatives and identify the right areas on which to focus.

Developing a ‘many-value’ sustainability strategy

While in the past real estate businesses may have felt they lacked the capacity or resources to invest in sustainability, it’s clear that it’s now a business imperative. As such, limited resources should not be considered a barrier to developing a sustainability strategy. Even if that strategy starts with managing risks, value and risk are connected – if a business is creating value, it’s avoiding risk. Similarly, often when a company works to avoid risk, it creates long-term value.

It’s also important to recognise that value is also different to each group of stakeholders, and investments create value in different ways. Investing in renewable energy, for example, can achieve operational energy efficiencies for the users of a real estate asset, save money for the owners and investors, and create brand value for the developer.

Not every aspect of a sustainability strategy will provide a directly measurable, tangible value, but that doesn’t make them any less worthwhile.

For more information on developing a sustainability strategy, read our report ‘How sustainability grows value in the real estate industry’, or get in touch with your Relationship Director to discuss how we can help you on your sustainability journey.

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