Tipping point: Towards a global consensus on greener construction and real estate

Some interesting insights can be drawn from the latest edition of Emerging Trends in Real Estate, an annual report published by PwC and the Urban Land Institute. The survey of almost 1000 industry experts (including investors, fund managers and developers) from 25 European countries points to a prevailing sense of caution in the real estate sector. Unsurprisingly, business confidence appears subdued, with almost half of respondents expecting a fall in profits and around a quarter anticipating job losses this calendar year. However, behind these headline numbers, a second, perhaps longer-term, trend reveals itself. The results seem to imply that environmental, social and governance (ESG) factors are reshaping the sector.

Around 80% of those surveyed say that energy efficiency, carbon emissions and climate adaptation will increase in importance in their portfolios. Nearly 70% said that investment directed towards reducing the environmental impact of the built environment was the most important action that the industry could take. What’s more, around 86% of respondents believe that, moving forward, health and wellbeing will become a crucial factor across all sectors of real estate.

Government policy could play a major role in driving these trends. The European Commission has introduced legislation to improve the energy efficiency of buildings. This is a key part of the Commission’s renovation wave strategy to decarbonise the continent’s building stock and a central pillar of the European Green Deal. Furthermore, member states have been asked to submit plans on how they intend to increase the number of nearly-zero energy buildings in their respective countries.

Momentum also appears to be building in the UK. In January, the government set out plans to improve the energy performance of British homes. By 2025, all new dwellings are expected to reduce carbon emissions by 75-80%. Existing homes will also be subjected to higher energy efficiency standards, while similar regulations are also likely to be established for non-domestic buildings.

Over time, it may transpire that these measures were just the beginning. The Committee on Climate Change (CCC), the UK’s independent statutory body, has outlined the true scale of the challenge. By their estimates, if the UK is to achieve net zero by 2050, carbon emissions from buildings must decline by around 50% in the next 15 years. The analysis furthermore suggests that government policy has yet to match rhetoric, with very little progress noted so far in decarbonising national building stock.

There has also been a push by President Joe Biden’s administration towards slashing emissions generated by the US’s 140 million homes and 6 million commercial buildings by 2030. This, so says the proposal, can be achieved through low carbon electricity generation and retrofitting. Sustainable building designs are becoming increasingly popular across the Middle East, with Qatar, UAE and Lebanon developing their own green building certification systems. Recently, the Japanese government has outlined plans to make solar panel installations a mandatory requirement for all new public buildings. A proposal to extend this mandate to include both new public and private buildings is also under consideration.

The debate, of course, extends beyond just carbon and energy efficiency. The buildings and construction industry is a voracious consumer of raw materials and produces more waste than any other sector. Very little is currently being done to drive uptake of recycled and reused materials. Questions remain, also, as to how the sector can improve water efficiency practices.