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The need to drive sustainability in real estate

In the real estate sector, the results of climate change will affect the risks, returns and value for asset managers, investors and occupiers. Now we’re seeing a significant shift towards sustainable investments that incorporate Environmental, Social and Corporate Governance (ESG).

November 22, 2021

One of the biggest hurdles to overcome relating to ESG is the environmental performance of buildings. In the UK, Net Zero Carbon (NZC) targets are fundamental in investor strategies and achieving their ESG related goals. Here we look at the factors driving sustainability within the sector.

Investor demand – responsible investors are taking ESG seriously

  • 80% of investors have a dedicated ESG team and 70% aim to have a budget to reduce carbon by 2025.
  • 77% of investors plan to stop purchasing non-ESG products by 2022.
  • In Q2 2021, sustainability-related fund assets climbed to $3 trillion globally, for the fifth consecutive time.
  • Green bonds are rising and predicted to hit $650 billion in 2021, 39% higher than 2020 – e.g. Whitbread issued £300 million of green bonds to support initiatives to halve carbon emissions by 2025 and 84% by 2050.
Market demand – investors and occupiers are seeking high-rated assets 
  • BREEAM Outstanding/Excellent rated office buildings are being leased quicker – 58% are let within six months, compared to 33% Very Good rated buildings.
  • Office occupiers pay a 10-11% rental premium for top rated BREEAM and EPC A/B buildings compared to all new ‘Grade A’ achieved rents.
  • To meet global emission standards by 2050 the rate of repurposing of commercial office stock needs to increase to around 5% of stock.
  • A green rated self-storage unit store is 6.7% higher than a brown rated one.
  • With Gen Z driving demand, sustainable hotels can save between 20% - 40% by improving energy efficiency and increasing profit margins long-term.
Occupier demand – firms are facing pressure to boost their sustainable credentials
  • The biggest six occupiers signed up to science-based targets have over 4million sq ft of space in 150 offices across the UK.
  • 82% of occupiers agree that their employees will increasingly demand green, sustainable spaces.
  • 79% of occupiers are prioritising buildings that help reduce emissions.
  • Firms are facing growing pressures from their investors to embed sustainability at the core of their business strategies.
Compliance –regulations and requirements are changing 
  • Over 90% of office assets will need to be improved over the next ten years to meet new minimum requirements for Energy Performance Certificates.
  • The UK government will be pushing asset managers through regulations to bring office spaces up to Net Zero Carbon by 2050.
  • Further details on SDR and UK Green Taxonomy will consolidate existing disclosure requirements into one integrated framework.
  • Large UK Firms will be required to publish their NZC Transition Plans by 2023.
  • Scotland needs to achieve net zero by 2045 in order for the UK to meet the 2050 target.

Take a look at our process diagram below to see the steps JLL are taking towards achieving net zero carbon.

Our Net Zero Design Consulting team can support you to inform your property investment decisions and deliver your refurbishment, fit-out or new development to net zero carbon standards.

To find our more, contact the team:

Janey Douglas

Verity James

David Bownass