By Claire West
The green agenda has become “unavoidable” for the real estate industry, part and parcel of making ‘safe investment decisions’ in a shrinking industry, according to Emerging Trends in Real Estate® 2011, published by PwC and the Urban Land Institute (ULI).
The commercial real estate forecast, based on the opinions of 600 industry experts, predicts that 2011 will not be the turnaround year that the European real estate industry had hoped for, with a “two-speed” market likely to emerge that reflects a widening gap between investment hotspots and second-tier property markets. Respondents expect more industry downsizing across the continent.
In the face of this, sustainability will become directly connected with high quality real estate said the report. This marks a shift for 2011 and beyond, positioning sustainable buildings as healthier, more attractive, and more marketable. Meanwhile, the capital value of nongreen buildings will fall in the future, the survey indicated.
Interviewees commented that sustainability had become “front and centre,” and “unavoidable.” Despite only representing 2% of the market, investors say “green is the new standard” in the report. It is the value that tenants now place on green buildings that is driving these changes. Tenants increasingly are looking for ways to drive operating costs lower and for energy-friendly buildings that reinforce their corporate social responsibility missions, people surveyed said.
While there was some evidence of tenants paying more for green assets, that view was by no means widespread. Experts admitted while sustainable buildings do not attract higher rents, they lease well in a weak market.
The wider knock on effects of sustainable investment were also becoming clear according to the report, with respondents saying it contributed to smoother relationships between real estate firms and planners, drove operating costs lower, and was contributing to attracting talent, who increasingly questioned companies on their CSR credentials.
The report sounded a note of caution however. The lack of a common standard and new technology as a moving target calls for some difficult choices in investments, while the market is still lacking know-how to address sustainability issues in existing property portfolios.
While developers (particularly those in the residential sector), government organisations, shareholders, and occupiers are more keyed into sustainability, fund managers interviewed remain sceptical over the prospect of financial rewards from higher up front sustainable property costs.
John Forbes, partner at PwC and one of the report’s authors, said:
“In future years we may look back on 2011 as a transformational year for the property industry. Real estate professionals face a challenging time. Traditional sources of debt, for refinancing properties with vacancies or in need of refurbishment, will not be available, although new sources of lending are expected in the shape of sovereign wealth funds and insurance companies. A big theme will be the continued downsizing of the industry and the winners will be those who are best able to manage their assets, rather than those who make clever stock selections.”
Malcolm Preston, partner, sustainability and climate change, PwC said:
"Increasingly the investment decision is not based on environmental issues alone, it’s become an economically rational choice for businesses, when you consider the returns from energy efficiency driven by the green agenda."