Last year, we wrote an article about the trends to expect for PropTech and the built environment. This year, we enlarge our scope, and take a look at residential and commercial real estate, PropTech and ESG trends in four separate articles in this 2023 Under Spotlight series!
This article from the series will summarize everything we have learned about ESG from market reports, industry events, podcasts, webinars in 2022, and bring projections for the 2023 market.
- The Ambiguity and Inequality Problem in Net-Zero: The environmental ambitions of the real estate industry are no longer the next big thing to be discussed in 2023. This year, keeping up with what has long been postponed are in highlight– taking concrete steps for net-zero goals, and staying committed to them.
- The Risk of Being Stranded: By 2030, a considerable number of buildings may need to be stranded or destroyed as they won't comply with the green standards, and refurbishing them will be too costly. This means that tomorrow's fully net-zero compliant buildings will need to be built today.
- The Common Agenda of Responsibility – The Future-Shaper of ESG in Real Estate: Running an environmentally and socially sustainable business will be one of the most important factors for successful organizational transformation in real estate over the next 20 years.
1. The Ambiguity and Inequality Problem in Net-Zero
2022 showed us that the real estate industry was living in two opposite realities when it came to ESG. While one side didn't even know what ESG meant, the other side took ESG as their biggest concern and priority. For progressive landlords, the concerns over meeting environmental targets have reached an alarming level regardless of the global economic downturn or other impactful events that could have shifted the focus of all businesses from sustainability.
The net-zero challenge is no longer about keeping a good brand name in the market or for lip service on the new generation trends. It has grown into a business requirement as much as a legal one.
Investors care about ESG when making commercial investment decisions, even though the level of importance given or what counts as criteria for environmentally-progressive building differs from geographical region to region.
We know that not all real estate companies have taken as concrete steps towards net zero as some of the industry leaders such as NREP or Newsec in the Nordics with their commitment to reach net zero by 2028 and 2030 respectively, or Charter Hall, Dexus or GPT Group in Australia, performing above the global average in sustainability performance.
The rest of Europe and North America are yet to catch up with the Scandinavian and Oceanian standards. For example, ¾ of the UK office market falls below the minimum energy efficiency standards that will be in place by 2030, and the rest of Europe shows similar numbers as well.
2. The Risk of Being Stranded
By 2030, again, in New York City, $500bn worth of office spaces that bring high CO2 emissions may need to be stranded or destroyed as they won't comply with the green standards, and refurbishing them will be too costly. In the case of demolition, constructing sustainable buildings on the same spots will require very strong investors and top-notch designers and project managers behind the projects, so that these buildings would not become irrelevant to the 2050 standards.
The industry did witness creating and hiring sustainability teams to some extent, or a few remarkable initiatives in 2022 and an explosion in the number of PropTech products focusing on environmental data tracking and reporting in buildings, while the inspiration from these has a direct impact on less than half of real estate.
RICS's 2022 Sustainability Report supports this claim. A significant proportion (45%) of the industry reports show that landlords use digital tools for completing sustainability tasks for less than half or none of their projects, while data is at the heart of ESG strategies for some of the biggest innovators in the market such as Allianz Real Estate or HIH.
In short, tomorrow's fully net-zero-compliant buildings will need to be built today, yet the question of how or rather the financing and velocity of this change remains unanswered.
3. The Common Agenda of Responsibility – The Future-Shaper of ESG in Real Estate
Running an environmentally and socially sustainable business will be one of the most important factors for successful organizational transformation in real estate over the next 20 years, according to PwC's Emerging Trends in Real Estate - Europe 2023 report.
The 'S' factor has been gaining traction in the last few years, as businesses see value in becoming more people-focused and trends as well-being and people's engagement matter more than ever before. This begins with creating communities, common spaces, and social impact through inclusion and diversity-oriented strategies, as well as supporting the concept of real estate as “social infrastructure”, which affects not only financial returns and tenant retention if not addressed, but also the social worth and image of companies.
''Environmental and social practices always go side-by-side. Paying attention to generating communities that add value to tenants' lives as a whole, letting a link grow between them and the space, making sustainability a part of community events, activities, and space design makes the tenant experience unforgettable. Sustainability practices go in line with creating a community synergy in the building, a way to empower the community with a common purpose," says Juan José Guillén Martínez, WeToGet's co-founder.
In our estimation, these trends will shape much of the ESG dialogs in real estate in 2023. We'll regularly update our audience on these trends as they come since the market is subject to change at all times!
