Ensuring that new buildings are sustainable and energy efficient is key to global efforts to tackle climate change. Sustainability in modern offices takes many forms but has been predominantly introduced at design stage, rather than through renovations and retrofitting. So what does this mean for older, less sustainable, buildings? With awareness of climate change and sustainability at an all-time high – it is no longer enough for organisations to set ambitious net zero carbon targets without a clear pathway for how to achieve them. The real estate choices that an investor or occupier makes will either enable their net zero carbon journey or obstruct it.
This is manifesting itself in green building policies, the leasing of workspaces with green building accreditations, and investment in solutions to improve energy efficiency. Sustainability is impacting real estate valuations, with valuers placing greater emphasis on energy rating certificates. Buildings which are not sufficiently energy efficient are being marked down and could, in time, become stranded assets, leading to direct and indirect impacts on investment strategies and liabilities.
As climate change and ESG requirements are shifting the landscape and expectations of the real estate industry, the phrase “stranded assets” is now being used to refer to older commercial real estate assets whose value could be adversely impacted with the shift towards greener buildings. Older buildings will require substantial capital expenditure to meet market expectations and/or future regulatory standards. This will result in not only the need for refurbishment but for vast structural changes – creating opportunities for investors (and construction companies) that are prepared to take on development risk to enhance investment returns, as well as for lenders willing to finance the works.
With the ESG Agenda at the forefront of business strategies, the impact of embodied carbon on the carbon footprint of a building should also be taken into consideration. Put simply, embodied carbon is the carbon footprint of a building or infrastructure project before it becomes operational. It also refers to the CO₂ produced maintaining the building and eventually demolishing it, transporting the waste, and recycling it. Over 80% of buildings that will exist in 2050 have already been built, meaning that retrofitting will be pivotal in achieving net zero targets. Refurbishing a building creates far fewer emissions than constructing a new one. Older buildings refurbished to include modern and sustainable technologies are set to be the real sustainable buildings. There are currently no definitive plans in Ireland to regulate or monitor embodied carbon but there are a number of indicators that this is likely to happen over the next five to ten years. Holland and France have already introduced regulations, with Finland set to introduce regulations in 2025 and other countries likely to follow. In 2006, green building certifications such as LEED and BREEAM were novelties but are now the norm for commercial, residential and many public sector buildings. With the movement towards a greater emphasis on recognising the embedded value of existing buildings, this is likely to become a mainstream consideration in the years ahead.