Green Buildings: The future of UK Real Estate

Why Real Estate must keep developing an ESG mindset

Sustainability, once considered a nice-to-have, has often aligned to brand purpose and corporate social responsibility and mainly offered intangible value to stakeholders. But today, sustainability is a business imperative that averts future risks, prepares businesses to manage the changing regulatory landscape and adds recognisable value to real estate assets, projects and firms.

In the wake of the Covid-19 pandemic, the desire for companies to build better futures is even stronger. Repeated outbreaks and the restrictions necessary to curb them have shone a harsh light on the inequalities in many countries, increasing the focus on the social ‘S’ in ESG (environmental, social and governance). At the same time, the climate crisis continues and the environmental element of ESG is hugely important for real estate, not least because it’s an area where the sector has much it can accomplish.

How big is the problem?

According to the UK’s Green Building Council, the built environment contributes around 40% of the UK’s total carbon footprint. That makes buildings the second largest source of emissions in the country, with 90% of homes using fossil fuels for heating, cooking and hot water and 66% of homes at Energy Performance Certificate D or worse. While residences were responsible for 68 Megatonnes (Mt) of emissions in 2018, commercial buildings emitted 12Mt and public buildings a further 8Mt. Offices, retail space, hospitality and industrial buildings account for around 80% of private sector buildings’ energy demand and are as much a part of the puzzle as domestic residences.

Newly constructed buildings are more energy efficient, but 80% of the buildings that will be in use by 2050 are those that have already been constructed before today. The British Government’s 2020 Energy white paper stated that meeting the UK’s net zero target means largely eliminating emissions from domestic and commercial buildings by 2050, so a major priority has to be decarbonising the existing stock.

Change is coming

For some time, stakeholders from investors to occupiers have signalled their interest in green buildings that can manage energy efficiently and produce positive impacts in local communities. They have been concerned with a range of issues, from the environment to social considerations such as affordable housing, buildings that consider their impact on local businesses, the local community, and more.

But before now, it wasn’t always possible to measure or demonstrate the value of sustainability. Many early adopters were focused on risk aversion rather than driving new value. Sustainability, however, can create and preserve commercial value, as well as brand value, and delivers results for stakeholders from investors to tenants.

Recent data from Jones Lang LaSalle (JLL) shows that sustainability is having a measurable and significant impact on value, with net zero carbon buildings in central London becoming highly desirable.3 Even A/B rated buildings show a 10% increase in rent. But those that are rated BREEAM (Building Research Establishment Environmental Assessment Method) ‘excellent’ or ‘outstanding’ achieve a 14% bump and average 80% pre-let by completion.

Real estate companies are well aware that they need to start embedding sustainability into their strategy and day-to-day business. But mapping a sustainability strategy for their operation, or formalising their existing sustainability drive, might be a new challenge for them.

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