In the evolving world of real estate, sustainability has become a fundamental driver, influencing both investors and occupiers alike. Moving into 2024, the industry will be required to work harder towards a more environmentally conscious and resilient future. Beyond the ethical considerations, sustainable practices have tangible financial benefits for both investors and occupiers.
Occupiers are prioritising green features in their real estate choices by increasingly demanding buildings that are energy and water efficient, and have a low carbon footprint. This is being driven by a number of factors, including rising energy costs and a growing awareness of the health benefits of green buildings. In offices, the definition of Grade A buildings has evolved to include only those that meet these criteria; take-up of this type of space has increased from 75 to 84 per cent on average across London, New York and Singapore.
For investors, the growing demand for sustainable buildings translates into enhanced values. For instance, in the Netherlands, a shortage of high quality offices has driven rental prices up by 5 to 17 per cent, compared to 3 to 7 per cent for lower-performing stock. Currently, only 4 per cent of the country’s commercial space achieves a BREEAM rating of Very Good, Excellent, or Outstanding, highlighting the scarcity of sustainable options.
Earlier this month, COP28 outlined several themes that directly impact real estate, including accelerating the energy transition, the creation of stable and resilient communities, and the financing of net zero transitions. These can serve as a guiding framework for the industry's sustainable evolution and future focus areas.
In 2024, sustainable building practices will take centre stage, reflecting COP28's emphasis on decarbonisation and refurbishment over new development, exemplified by the Buildings Breakthrough’s global push for near-zero emission and resilient buildings by 2030. The share of office refurbishments is already set to increase in London’s West End from 35 per cent pre-pandemic (the 10-year average) to 43 per cent between 2023-2027 and in Paris’s IDF from 40 to 48 per cent, reflecting landlord response to more stringent environmental regulations and an effort to decarbonise their portfolios.
Decarbonisation of the industry will also be led by new regulations in some jurisdictions. This is going to lead to the integration of renewable energy sources becoming standard, more green certifications such as LEED and BREEAM, and the use of sustainable and low-emitting building materials, and sustainably harvested wood becoming increasingly common.