Property in: LONDON
Sustainable Real Estate: The Green Revolution Impacting Asset Values

Sustainable Real Estate: The Green Revolution Impacting Asset Values

by Kos
5 minutes

In recent years, environmental, social, and governance policies (ESG) have taken centre stage, driving a push towards achieving net carbon neutrality across various markets. This shift is profoundly impacting the real estate sector.

In June 2019, the UK set an ambitious goal of achieving a 100% reduction in greenhouse gas emissions by 2050, known as the Net Zero Target. 

"Along with events like COP27 and this greater attention on climate change in recent years, sustainability and ESG have become buzzwords, particularly in the real estate sector."

The significant carbon footprint associated with building construction and operation is a major driver of viability concerns.

Buildings In London

Developments currently contribute to a substantial portion of global energy-related carbon emissions, highlighting the urgency of addressing this issue.

Aspect Global Energy-Related Carbon Emissions (%)
Operational Emissions 28%
Emissions from Energy Use 11%
Emissions from Materials and Construction 11%
Buildings in Total 39%

The Introduction Of The Net Zero Strategy

To align with the Net Zero Target, the UK government has introduced the Net Zero Strategy, outlining principles for decarbonization in construction and infrastructure projects. A guidance note from the UK Government Commercial Function provides further details on these requirements.

The Net Zero Strategy's implementation and continuity regulations directly influence investment decisions in the real estate sector. A 2022 RICS Sustainability Report highlights an increasing demand for "green" constructions among UK investors and customers.

New Energy Standards

This trend is further reinforced by the Minimum Energy Efficiency Standards (MEES) introduced in April, which makes it unlawful to lease a commercial property with an Energy Performance Certificate (EPC) rating below F or G. These criteria are expected to become more stringent by 2030, further impacting the industry.

The Era Of The "Green Premium"

Historically, houses exceeding minimum energy and sustainability requirements commanded a "green premium." These developments achieved higher values due to their enhanced environmental performance.

The 2023 BCLP Law Energy Efficiency Series underscores the advantages of green buildings:

  • more rapid leasing, 
  • lower vacancy rates, 
  • rental premiums, 
  • increased occupancy rates, 
  • higher sale prices. 

Green Developments In London

Sustainability Becomes the Industry Standard

The confluence of regulations and market dynamics has elevated the value of continual assets to the point where viability is now considered the industry norm rather than a premium feature.

While location has always been a critical factor in determining real estate values, there is a growing trend of properties in prime locations being sold at a "brown discount" due to their inability to meet legal sustainability requirements. Such constructions require substantial upfront investments to meet these criteria.

Shifting Dynamics in Office Demand

The JLL UK 2023 Capital Markets review and outlook indicate declining demand for office developments, driven by remote and hybrid work arrangements and the challenge of meeting feasibility conventions in older buildings.

Shifting Demand

Continuity remains a critical factor that can either enhance or diminish equity values in prime locations. The evolving trend of returning to offices by major companies adds complexity to the equation, highlighting the ongoing need to meet sustainability principles.

Was this article helpful?

Similar news you may like

We use our own and third-party cookies to collect data related to your activity on our site for analysis and to improve your experience. By continuing to use our site, you consent to the use of these cookies. Learn more