Unprecedented collective action is needed to decarbonise the world: this is the message of the annual Emerging Trends in Real Estate Global Outlook, which has just been published by the ULI and PwC.
The real estate industry is tackling the twin challenges of ESG issues becoming increasingly important and a cyclical downturn aggravated by the consequences of the coronavirus pandemic.
Covid-19 has been a great accelerator of existing trends, such as digitalisation and online shopping, but it has also brought the ESG agenda to the fore. The real estate industry is now looking beyond occupancy rates and returns and it is starting to address its wider responsibilities.
More companies than ever before are putting climate change and decarbonisation strategies at the heart of the way they do business as they respond to the pressures of the pandemic.
Yet there is a growing awareness of the risk of “greenwashing”, caused by the profusion of certifications, standards, targets and terminology and the absence of a common definition of what net-zero means.
The report suggests that using a certification or standard that takes account only of a building’s carbon emissions and not of embodied carbon, emitted during production and transport of materials and the construction of the building, is a form of greenwashing.
“Any certification or net-zero standard that does not put embodied carbon front and centre of its thinking risks sending the real estate industry down the wrong path, stifling innovation in the areas where it is truly required, and diverting funding to initiatives that will not be that impactful in reducing carbon emissions,” the report says.
“There remains a daunting amount of complexity in the development, ownership and operation of real estate, which makes coming up with an effective strategy vital”, said Craig Hughes, global real estate leader, PwC. “Owners, occupiers and all other stakeholders in the real estate value chain will need to work together, if the industry is to play its part in reversing climate change and adapting to a post-pandemic world.”
The ULI/PwC report also examines other trends, such as the volatility caused by unprecedented levels of fiscal and monetary stimulus, growing lender caution and expected levels of distress once government support measures end.
Most industry leaders canvassed for the report believe the distress will not match the levels reached after the global financial crisis. They are also hopeful of a consumer-led economic recovery, which should feed through into an uptick in activity in the second half of 2021. But much will depend on the rollout of the vaccine and the easing of lockdown restrictions.
Looking at sectors, the report predicts a “bifurcation in pricing” between in-favour sectors like logistics that have provided stable income during the pandemic and those sectors that have been hardest hit, such as hospitality and parts of retail.
Residential is also in favour, with investors seeing favourable supply-demand dynamics, while the outlook for the office sector is more difficult to predict. But the report suggests that the impact of the pandemic on offices might be less significant than expected. Employees are expected to eventually want to return to the office, albeit in more of a “hybrid” working model than in pre-Covid times.