Factors to consider in sustainable real estate investing
As ever more investors consider the impact of social and environmental factors on their portfolio, asset managers are becoming increasingly innovative in how they approach sustainable investing. We see this is especially true in the real estate space, where investor interest in green buildings is increasing.
There is growing evidence that sustainability in real estate investing offers a range of positive fundamentals: ‘green’ properties are better protected against early obsolescence and have a reduced risk of vacancy as there is increasing demand for sustainable buildings, especially among corporate clients. Lower operational costs of these buildings due to their energy efficiency also result in enhanced asset values over the long-term.
To benefit from these upsides and to be better prepared for the upcoming challenges posed by climate change, many investors are turning to environmentally sustainable real estate assets.
Focusing on sustainability standards and green building rating systems like LEED or BREEAM to measure how green their investment is a good start, but investors must factor in one crucial further consideration: a building’s occupants.
After all, sustainability is also about how people make use of the resources and possibilities available to them. “It is not the building itself that produces the lion’s share of emissions, but people’s way of using it,” says Etienne Dupuy, Managing Director of Asset Management Europe, Invesco Real Estate*.
Modern technology offers a lot of opportunities for reducing environmental impact; with solar panels on rooftops and carbon-dioxide monitoring systems, green buildings are certainly doing their part. It is crucial nonetheless to educate tenants using the technology on how they can contribute. After installing a heating system powered by recycled waste, it is equally important to make sure people understand how the system works and how to heat their homes or offices in an ecologically responsible way.
Getting people to switch off the lights and their office computers over the weekend can make a big difference in saving resources and costs, too. Invesco Real Estate, for instance, is experimenting with gamification to encourage positive behaviours. Rather than lecturing people about the importance of saving energy, competitions about which office floor within a building saves more electricity can be more effective in getting people to switch off the lights during evenings.
Investors should not forget that the choices made by people living or working in properties regarding consumption of resources and use of technology can contribute as much to the performance of a real estate asset as the green design of the property itself. Factoring in engagement with tenants can therefore be crucial for the success of investors’ sustainability strategies.
* Etienne participated in a panel discussion on Sustainability and Green Buildings. This event was organised by Property Investor Europe and took place on 22 February 2018 in London