If the real estate industry is going to build back better, it must build back greener

Views expressed in this article are a reflection of individuals’ opinions at the time of speaking during the EPRA Annual Conference 2021 on September 22, 2021, and do not account for subsequent policy, regulatory or public health developments.

When the real estate industry came together virtually last year for our conference, the idea of an event being held online still felt novel. However, one year on, amongst continued uncertainty, once again, it was from their computers that the industry dialled into REthink 2021.
The virtual format did not prevent the conference from proving to be a resounding success once more. Hundreds of industry professionals came together to listen to leading insights on the future of the real estate industry, from the progress in recovery to the opportunities for growth. But amongst it all, a clear message ran throughout: that it was time to look beyond Covid and build a better future for the industry.
This was certainly the case with the day’s opening keynote from the former Governor of the Bank of England, Lord Mervyn King, who was quick to point out that Covid-19 was endemic and that we must “stop understanding it as a temporary crisis and learn to live with it”. For King, Government policy needs to move past eradicating the disease and instead focus on “developing an effective debt management strategy and promoting a stronger economic system”.
By all accounts, we are beginning to see these attitudes become more pervasive amongst world leaders, particularly as restrictions ease and vaccination programmes continue to pick up the pace. For Lloyd Barton, Associate Director & Head of Global Trade at Oxford Economics, this is one of the reasons we are already seeing a strong economic bounce back in Western Europe and went on to suggest that this may only be the start with “increased government spending, the release of NextGen EU funds and loose monetary policy all set to drive further growth”.
We are also seeing Barton’s optimistic macroeconomic assessment being mirrored in the real estate industry. Kim Wright, Head of Listed Real Estate at CPP Investments, pointed to global LRE share prices already being 11% above pre-covid pricing, asserting that “the overall backdrop is overwhelmingly positive”.
However, with recovery clearly picking up pace and a renewed sense of optimism that we may be returning to ‘normal’, the real estate industry must now ask itself what it wants the new normal to look like. Harm Meijer pointed out that the industry “was undoubtedly one of the hardest hit”, with its make-up meaning it was “heavily exposed to the pandemic”.
Of course, real estate’s exposure to the pandemic was not avoidable, but there must be some reflection about how it can build an industry that is stronger and more resilient than it was before. This is something that Méka Brunel, CEO of Gecina, is acutely aware of. “The real estate industry is now in a state of transformation,” Brunel commented. “We must now look to build a new environment and move away from the ways of old.”
So, what does this new environment look like? For Jo De Wolf, CEO Montea, it’s simple: “We need to be taking a more human-centric approach to real estate.” It’s a sentiment shared by Rita Rose Gagne, CEO Hammerson, who feels the industry must refocus itself on the needs of customers and prioritise building relationships with tenants.
But the needs of tenants are not what they were 18 months ago. The pandemic brought with it a rapid acceleration in climate concerns, and we are now seeing ESG credentials scrutinised like never before. As Brendan Wallace, Co-founder & Managing Partner at Fifth Wall, points out: “Assets that don’t look to mitigate their climate impact will simply find themselves without tenants.”
This frank assessment isn’t falling on deaf ears within the industry. We already see a concerted effort amongst those within the industry to not only ensure their new developments are sustainable, but their existing assets are too. “We cannot condemn assets to functional obsolescence; instead, climate impact must be mitigated across entire portfolios,” Brunel says.
Brunel highlights one of the greatest challenges for the industry is that so many assets were designed before ESG even existed as a concept. Therefore, to properly combat the climate crisis, considerable attention must be paid to retrofitting existing assets.
According to De Wolf, this means “thinking more creatively and considering a host of innovative solutions”, which is why we are seeing an ever-increasing importance of climate tech within the industry to help retrofit these assets. Whether it’s using solar panels or the adaptation of ventilation systems, the decarbonisation of the built environment will be impossible without these sorts of solutions.
The scale of the challenge is, of course, significant, with the decarbonisation of the real estate industry predicted to cost in the region of USD 18 trillion. But the industry cannot tackle this alone. There must be greater regulatory support to incentivise these decarbonisation efforts, a view fully endorsed by Wallace, who suggests that “regulators must match their increased interest in the climate crisis by creating an environment that is geared to tackle it.”
Therefore, it is easy to understand the disappointment earlier this year at the lack of attention paid to incentivising the renovation of existing buildings in the latest iteration of the EU ESG Taxonomy. If the industry is to make inroads into that USD 18 trillion figure, then more must be done to enable them to do so.
We are now nearing two years since the outbreak of the pandemic, and it is hard to make too many predictions about what the future holds. However, over the last few months, we have seen that economic recovery is well underway and with this comes a great opportunity for the real estate industry. It must now take this chance to rebuild a resilient, stronger, greener version of itself. If this opportunity is taken, then the future may be very bright indeed.