Commercial Real Estate Sustainability in 2017: Seven Likely Highlights

I think most will agree that 2016 has been year of surprises and uncertainties in many arenas. In spite of this, we’ve seen some positive moves in many aspects of the world of commercial real estate sustainability and 2017 could shape up to be an equally encouraging one. I wanted to share EVORA’s thoughts on what we think the highlights of the next 12 months could be.

1. EU and US Political Surprises

The question is will the progress of recent years to a greener and more energy efficient real estate sector be halted or even reversed following Britain’s vote to leave the EU and the US electing Trump? However, the reality is that for the next 5-10 years there could be very little regulatory change, certainly in Europe. Let’s not forget the global context; the UK and other members of the EU are all also members of the International Energy Agency (IEA). As such all are committed to implementing IEA guidelines which is a good example of why the UK as a whole, and more specifically the real estate sector, would still be required to act on climate change whether part of the EU or not.

Aside from Brexit we’ve already been anticipating some ‘rationalisation’ of the UK energy legislative landscape i.e. the review of how its main elements work together; Carbon Reduction Commitment (CRC), Climate Change Levy (CCL), the Energy Savings Opportunity Scheme (ESOS) and mandatory GHG reporting etc.

For the time being, companies will still need to comply with existing legislation and instruments such as ESOS (and MEES – see No. 3, below) should surely, at the very least, only promote the business case for investment in energy efficiency rather than hinder it. Although broader economic performance has not been as bad as predicted since the Brexit vote, the continued uncertainty will be stifling company decision making and the sooner the UK government can provide clarity the better.

2. The Health & Wellbeing Agenda

Recent months have been awash with this topic and I would like to think that, despite staff engagement within many organisations still having some way to go, there need be no more debate that addressing health and wellbeing has a demonstrable business case. There are some great case studies coming out of the retail and commercial office sectors but can we expect 2017 to be the year in which there will be more action? EVORA expects the profile to continue to be increased but perhaps firm action (and to a certain extent, interest) could be limited to major developers and larger investment companies. That said, rapid acceleration of relatively inexpensive monitoring technologies should enable ease of access to valuable data (such as indoor air quality) to organisations of all sizes. This could lead to occupiers taking the initiative on health and wellbeing conversations with their landlords. It will also be interesting to follow the uptake of and insights provided by GRESB’s Health & Wellbeing Assessment; 2016 already saw nearly 25% of the entities that reported to the GRESB Real Estate Assessment voluntarily report to the Health & wellbeing module.

3. EPCs

With the 2018 Minimum Energy Efficiency Standards (MEES) deadline looming, we could see potential high profile litigation relating to historically incorrect EPC assessments. With not much more than a year to go, 2017 should see a lot of activity in this space with a push to understand and address EPC risks. This is something EVORA have recognised the need for expertise in having recently launched EVORA EDGE, our technical engineering division.

4. Science Based Targets

Following the first theme regarding the global context to action on climate change, 2016 saw an increase in the commercial real estate sector’s interest in science based targets (SBTs). One of our Junior Consultants, Kim Diep, wrote two blogs on this providing considerations for the real estate sector. EVORA anticipates that SBTs will continue to gain interest amongst the REITs and Institutional Investors that consider themselves at the forefront of carbon reduction target setting. This will no doubt be a topic on the minds of those following the ongoing response to the COP21 outcomes as a means of aligning the carbon reduction strategies for real estate to the requirements of broader climate policy.

5. Increasing Momentum in Voluntary Reporting

2016 saw a 30% increase in the number of participants in GRESB (Global Real Estate Sustainability Benchmark) in two years, with Europe participants alone comprising $750 bn in total asset value. EVORA was certainly kept busy managing the process of more than 40 submissions for our participating clients. Indeed, the uptake of GRESB in the real estate sector is a fairly good barometer of interest. Investors are asking more and more about ESG and GRESB appears to be an increasingly popular means of engaging in the topic with their fund and asset managers. GRESB has recently released the guidance for the 2017 survey; whilst it’s important that participants engage with GRESB to shape the methodologies to ensure scoring is reflective of market conditions, it will be good news to the ears of those involved with administering submissions that the Real Estate Assessment is being kept stable. EVORA expects increased uptake but also even more focus on score improvement.

Stay tuned to our newsletters for information on the release of our upcoming GRESB eBook and our GRESB Masterclass in March.

6. Focus on Data Accuracy

With more and more data being collected and analysed to inform real estate decision making, accuracy is going to be ever more important. We’ve already highlighted this in respect of EPCs but also GRESB as an example where accuracy of information will be key to implementing improvements and where there is a trend increasingly toward the need for investment grade data. These are merely two examples against a background of emerging ‘big data’ trends which are increasingly pertinent in the real estate sector. Our Technical Architect, Alex Graham, blogged about this very topic in 2016; he highlighted how big data will continue to shape our approach to our software SIERA, for example, to enable our clients to get the insights and information they need to improve their sustainability efforts.

7. Continued Fall in Cost of Low Carbon Tech

Despite the recent backtracking from the Government on the fiscal incentives for low carbon technologies, EVORA would argue that the shortfall in policy could be replaced by market forces which seek similar objectives to ensure a low carbon, energy efficient, economically viable and productive real estate sector. Therefore, despite the seemingly persistent barriers, we expect to see a continued uptake and fall in cost of low carbon technologies. Getting the strategic balance between decarbonisation of energy supplies/generation and energy efficiency will continue to be important.

If you have any questions or if you would like more information on any of the topics covered in this blog post, please don’t hesitate to get in touch with our experts today.