Green Real Estate – A Significant Value Proposition
Climate change represents the major global challenge of our time, with global CO2 emissions continuing their upward trajectory. Green or greener buildings may help to solve this pressing issue.
Our planet's average temperatures are increasing fast. It is very likely that the period 1983-2012 was the warmest of the last 800 years. Over the years, a broad consensus among scientists seems to have emerged: A continued rise in greenhouse gas emissions may put humanity at risk and eventually lead to our extinction. Meanwhile CO2 emissions show no signs of slowing down. (See figure) The stakes at the forthcoming UN summit on climate change in Paris later this year are thus very high. More than 190 governments and numerous civil societies will gather to discuss a possible new global and legally binding agreement aiming at combating climate change effectively, while also achieving the transition toward low-carbon societies and economies. This agreement is targeted to enter into force in 2020.
Buildings Behind a Third of CO2 Emissions
Sustainable real estate or so-called "green buildings" could make a major difference to this pressing climate change issue as approximately one third of global CO2 emissions stem from the real estate sector. Additionally, around 40 percent of all energy generated across the world is used to cool, light and ventilate buildings, and more than half of all natural resources are used by the real estate sector. "Thanks to its considerable potential to mitigate greenhouse gas emissions, the real estate industry can significantly influence climate change in both developed and developing countries," said Roger Baumann, COO & Head Sustainability at Credit Suisse Real Estate Investment Management. (See box below for additional information about this business area)
Rising Demand for Responsible Investments
An increasing number of (institutional) investors are now adopting a more responsible investment approach. They are demanding investment solutions that comply with environmental, social and governance criteria in order to meet their stakeholders' expectations. "The world is changing. Real estate investment is changing. For many investors it is not just about investing their capital. They also want to invest in values, in their ideas of an environmentally responsible economy. They want smart and responsible investments working toward CO2 reductions," said Timothy Blackwell, Global Head of CS Real Estate Investment Management. This increased commitment to responsible behavior has boosted the demand for green(er) real estate. (See figure)
A Rosy Future Ahead for Green Real Estate
The compound annual growth rate of the green building market is estimated at 13 percent over the next five years, according to the study "Global Green Building Market Outlook 2020." The US remains the biggest market for the construction of green buildings, while developing economies in the Asia-Pacific region show significant growth. The consulting firm, Grand View Research, forecasts the value of the green building materials sector to rise dramatically by 2022, to around 365 billion US dollars. Last year Europe accounted for the highest share of this market, buoyed by governmental initiatives aiming at retrofitting buildings to comply with stricter (greener) standards. In North America, the green building material market is largely driven by large-scale construction, while this market is still in its nascent stage in Asia-Pacific. But new governmental regulations will change the situation in the region and drive growth in the coming years.
A Significant Value Proposition
Investing in green buildings is not only essential for a sustainable future, but also makes smart business sense. Sustainable real estate has the potential to provide economic returns as well as environmental returns while addressing greenhouse gas emissions and energy efficiency. "Investments in real estate, especially against the backdrop of the low-interest environment, are gaining investors' attraction. If broadly diversified to both market risk and sector risk, green real estate can offer a true and sustainable investment alternative. Additionally, climate policies and environmental development can be taken into consideration," said Anja Hochberg, Chief Investment Officer Switzerland and Europe. Several reports about the real estate market indicate that green real estate achieves higher returns for both rents and sales prices: rents can be up to 10 percent higher and sales prices up to 30 percent higher.
Creates Long-Term Value for Investors
To qualify as green properties, buildings must comply with numerous criteria to obtain green certification. One of these is the globally recognized LEED (Leadership in Energy and Environmental Design) certification. LEED-certified buildings on average use 25 percent less energy and cut aggregate operational costs by 19 percent compared to non-certified buildings, according to a survey carried out on 22 representative green buildings from the US General Services Administration's (GSA) national portfolio. A good example of such a property is "the Exchange" in Vancouver, the city's first high-rise with LEED Platinum certification. This building combines various green features, such as storm water retention, solar thermal panels and a triple-glazed curtain wall. The environmental impact is impressive: an 85 percent reduction of CO2 emissions compared to comparable traditional buildings, an energy consumption cut by 50 percent which is equivalent to a 35 percent reduction in energy costs. A real estate fund of Credit Suisse currently finances the construction of this 31-storey building. "This example clearly shows that environmental and economic returns can successfully coexist and are both achievable," Blackwell said. "To invest in green real estate is an expression of the spirit of time. It is an investment into the future. A future shaped by an environmentally responsible economy," Blackwell concluded.