The Sustainability Imperative: The Future of Real Estate Investment
To reduce emissions and limit temperature rises, business models and economies will need to adapt. Although real estate is just one facet of the complex sustainability challenge that the world faces, it is a critical one: nearly 40% of global carbon dioxide emissions come from the real estate sector. The footprint of commercial buildings has never been under more scrutiny. As businesses feel the pressure to reduce their environmental impact, ‘greening’ their real estate is one of the first levers that they reach for. And as many organizations reduce their office space, sustainability becomes a critical factor in the buildings they choose – and those they lose.
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This short video covers the key findings of our global research study and sets out the key challenges and opportunities for the real estate sector when faced with the sustainability imperative.
We are entering a period of commercial real estate reinvention
Chris de Pury
,Global Head of Real Estate at BCLP
Our research shows that almost all corporate tenants are considering sustainability factors when making property rental decisions, and investors recognize the impact of the ‘green premium.’ But as sustainability standards rise, this green premium could give way to a ‘brown discount.’ On average, investors believe that 11% of their firm’s current real estate investment portfolio is at risk of being unsaleable due to failure to meet certain sustainability criteria. This amounts to an average of $442 million of investments at risk per firm.
Both corporate occupiers and investors are aware of the sustainable real estate imperative, but closing the gap between intention and action is challenging – and expensive. Our research sheds light on an increasing dislocation in the market: 79% of corporate occupiers say that by 2030 the sustainability of a building will be the most important factor in the rental decision-making process for their organization, but investors believe that on average, over half of their property portfolio (55%) will still be made up of real estate assets that have unknown, poor or average sustainability performance by this date.
The research identifies three key barriers to sustainable real estate investment: a lack of consensus (including definitions, certifications and data); the need for cultural change and organizational transformation; and the difficulty in bringing older buildings up to modern sustainability standards. We also explore some critical drivers to increasing investment, including greater standardization, government incentives and proptech.
As part of our research, we identified three key dimensions of sustainability-focused real estate investment: firms’ strategy, appetite, and level of investment in green real estate. We then scored our investor respondents on each dimension, enabling us to map areas of strength and weakness on a global and market level.
The Sustainability Imperative: The Future of Real Estate Investment report is based on an independent, global opinion research study, and supplementary qualitative interviews with BCLP partners and industry thought leaders.
