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January 2019

Sustainability – a key factor for real estate

Sustainable RE 2
Electromobility is on everyone's minds: as an investment theme, as a fun factor, but above all as a solution to climate change. However, it is less well known that the real estate sector is also an important jigsaw piece in the fight against global warming. According to figures from the Climate Panel (IPCC), real estate is directly and indirectly responsible for almost a fifth of global greenhouse gas emissions. This is more than the emissions generated by the entire transport sector. The 2-degrees target of the Paris Agreement is therefore not achievable without including real estate.
Interactions with climate change
While the impact of real estate on climate change is being slowly recognized, its repercussions on real estate are still underestimated. One of these effects stems from the rise of the sea level. The Research of the real estate portal Zillow is already predicting that 300 cities in the US will be threatened with losing half of their real estate. This would affect 1.9 million properties worth almost USD 900 billion. Zillow calculates an already noticeable effect on real estate prices in coastal areas, such as the Gade County in Florida. Another effect of climate change is the measureable increase in the incidence of storms, which depress prices in storm-prone areas and increase building insurance premiums. According to the Lloyd's City Risk Index, Asia's cities are the most affected from Taipei to Tokyo. But places inland are not safe either. Bushfires from Australia to California have caused considerable damage. Rising heat levels increase the cost of air conditioning and ventilation.
Significant transition risks
However, if the signatories of the Paris Agreement implement their commitments, while the physical risks of climate change can be contained, we will be facing the so-called transitional risks. In order to bring about a drawdown of CO2 in the atmosphere, prices for heating oil and electricity are required to rise. Building regulations will increasingly enforce energy efficiency measures. Already, some cities have started restricting the sale of high-energy-usage buildings to force property owners to refurbish them. In order to achieve the climate goals, drastic measures will be necessary.
Integrating sustainability into the analysis
The conclusion is clear: Real estate own-ers need to be aware of the consequences of climate change and integrate them into the analysis of properties and real estate investment trusts. Investors are facing the choice to make their properties ready for the future at an early stage or to have to accept expensive renovations later. At the same time, the selection and planning of sustainable buildings also offers considerable financial opportunities: rents can be increased and the need for renovation reduced, which has a positive effect on the value of real estate. This newsletter gives you an overview of the tools of sustainable real estate management to unlock the potential of real estate and reduce the risks of global trends. I wish you a lot of interesting insights reading this newsletter and a happy and blessed New Year 2019.

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