The sustainable real estate investment is a real current topic, in a time when the aspects related to the profitability, the environnent, the social seek to define a dynamic consistent with an investment logic.
What exactly is it about?
Aware of climate change, Precursors to a pattern of increased consumption of natural and energy resources, the social well-being has never weighed more heavily as a vector for major challenges to be met.
The future tends to fit into a logic where consumers and future investors will turn to more sustainable and responsible investments.
The sustainable real estate is still in its infancy, but it is already appropriate to provide some answers to its understanding. We know that the last few years have been synonymous with uncertainties regarding the adoption of sustainable strategies, However, we would like to participate in the reflection effort.
Definition of sustainable real estate
There is a certain tendency to define the concept of a sustainable building by its energy efficiency. However, this is a simplistic view since, according to the Sustainable real estate observatory, it is a question of building to preserve the local biodiversity. A will all the more present to apprehend the construction of the new sustainable real estate, sustainable in the long term due to the evolution of its use.
Constructing a new building has indirect consequences such as greenhouse gases and the effects of their emissions due to their energy consumption over the next fifty years.
A sustainable building must also respect social issues such as accessibility, comfort and governance criteria. This is the case when it comes to involving stakeholders in the operating process.
Moreover, these criteria are categorized under the acronym ESG for environmental, social and governance issues in order to achieve positive impacts.
What are the challenges of sustainability?
The building sector is very polluting because it represents considerable energy and resource consumption, whose ecological impact is predominant.
The industrial sector consumes about 40% of our energy and raw material resources and is the largest emitter of greenhouse gases worldwide.
The World Bank indicates that the industry’s priority is to reduce its CO2 emissions impact to 36% by the year 2030 in line with the targets set by the COP21, of the Paris Agreements in 2015.
There is no shortage of things to think about, but they represent a considerable cost and lead to longer delays. This is especially true when it comes to improving insulation or configuring lighting, heating and water systems.
Another point, and not the least, is that of waste management and maintenance, to which additional problems have been added.
It is easy to understand why the installation of renewable energy generators is becoming a necessity. The study of the National Renewable Energy Laboratory mentions that implementing solar panels on every roof would generate almost 40% of the energy supply. Thus, it would be a question of reducing the consumption of buildings, without altering the production of energy and heat. And without polluting.
As a result, the social dimension increases in the eyes of investors and joins the environmental aspect emphasized by the general public.
Acting locally becomes an investment argument to support the collective benefit.
How can individuals invest in sustainable real estate?
First, individuals will be able to choose to invest in existing real estate. For this, the energy performance diagnosis will be required.
This can be the object of an objection in case of doubt of the buyer. A new diagnosis may be requested if the results obtained differ from the first.
Individuals can then invest in real estate investment funds through their bank or direct action. The existing funds of the latter will be analyzed through the reading of their annual report and they will be able to use the SRI label (socially responsible investment) pending the creation of a European label.
Last option, investment by listed real estate investment companies created since 2003 or by listed companies investing in real estate.
These companies are involved in the investment of buildings for offices but also for residences.
You should know that they are obliged to present their societal commitments in the framework of the sustainable development.
What is the return on investment for the costs incurred?
In the previous paragraph, we mentioned the legitimacy of the label to promote investment in sustainable real estate. Indeed, the certification system deserves an additional effort of standardization and transparency. Moreover, the levels of certification have a different influence on the construction costs, which are more or less high, depending on the label reached.
However, the certifications increase occupancy rates as well as above-market rent levels. In return, tenants benefit from a 20% savings in charges.
The study of the Journal of Environmental Economics and Management compared certified sustainable buildings to non-certified construction projects and found that sustainable projects are more expensive to lease. Costs and returns also differ by market and geography.
Another advantage is to be noted at the sale of the asset since the price of the latter will be higher if the label is sustainable.
Recent decades mark the beginning of a collective awareness for zero carbon emissions on real estate assets. The passing of the torch from Boomers to Generation Y and Millenials underscores the momentum for responsible investing.
Sustainable real estate investment VS traditional real estate investment: what is the level of risk?
When it comes to sustainable real estate investment, the main risk lies in the greenwashing. Understand by this, the greenwashing to make believe that an individual or a structure advances false arguments to advocate the values of ecology of its sustainable real estate.
Apart from that, investing in sustainable real estate is much less risky than investing in conventional real estate due to the regulations put in place by the climate law and resilience, prohibiting the rental of thermal homes, in other words, poorly insulated and energy-intensive properties.
So there is no debate about the risk of building sustainable buildings, which have superior performance diagnoses.
In addition, hard asset real estate is often built within metropolitan areas and its value continues to increase despite the spread of neo-ruralists. However, there is a risk of additional costs related to management fees because the property is durable.
The real challenge is to find harmony between financial objectives and environmental criteria. The cost analysis leads us to measure the benefits of investing in sustainable real estate. The use of digital tools through artificial intelligence is a good way to convince reluctant profiles in terms of CO2 impact or savings.
Politicians and regulators have a role to play, as the adoption of laws and a watchful eye on greenwashing imply better practices to enhance sustainability.
Moreover, sustainability is often decried, but as we have seen, it can suggest a formidable source of value creation for the collective interest and well-being.
The role of private real estate funds is emerging as the keystone where the transition from “green” to existing real estate and the cost of development and investment over the long term are pitted against the risk of obsolete real estate and its short-term yield obligations.
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