For the real estate sector 2022 will be the year of decisive action on ESG issues, delegates heard at Real Asset Media’s Global Outlook 2022 – Key Trends briefing, which took place online recently on the REALX.Global platform.
“The ESG agenda is playing a definite role in the repositioning trend,” said Serge Bacconnier, deputy head Paris office, Berlin Hyp. “It is making the redevelopment of assets more attractive, and that’s a trend we expect to continue for the next few years.”
In France core plus and value-add already represent 50% of the office market.
“In terms of volumes the office sector will remain the main asset class, but with a strong focus on ESG,” he said. “As spec development gets more difficult to finance, we’ll see more buildings being refurbished.”
The trend is clear, but the risk is that there will be a further polarisation between prime areas, CBDs and big cities at one end of the spectrum, where refurbishment takes place on a big scale, and suburban locations and secondary cities at the other end, with standing stock at varying degrees of obsolescence.
“Refurbishing existing buildings is the way to go, but the maths work better in high-rent cities, where you get a faster payback,” said Megan Walters, global head of research, Allianz Real Estate. “The downside is that they will see refurbishment first, while other more peripheral locations will be left behind.”
The positive side to the value-add approach is that it is driven by ESG and is leading to a real transformation of the sector and the way it operates. Action is finally replacing words.
“There is a real sense that now is the time to act,” said Iryna Pylypchuk, director of research and market information, INREV. “The feeling is that it’s no longer about disclosure but about action, and performance data are helping the industry to move forward.”
It is a real change of mindset for the real estate sector as companies realise they can reduce costs and create outperformance by improving ESG efficiency.
Large companies will lead the way. “I am optimistic that large occupiers are pushing towards a 25% reduction in emissions by 2025 and being carbon neutral by 2050,” said Walters. “They want to be seen to care about ESG and they also want to attract young talent.”
The flight to quality is generating a virtuous cycle and hopefully large companies’ example will trickle down to smaller players.
“We see it every day in our collaboration with institutional players with the means to pursue an ESG strategy and put it in place,” said Bacconnier.
One of the key trends is finding the path to net zero, in line with the EU’s aim to be carbon neutral by 2050.
“Finding the path to net zero remains the ultimate challenge for an industry which is one of the biggest generators of carbon in the world,” Thomas Veith, partner – leader real estate/real assets, PricewaterhouseCoopers.
Things are moving in the right direction but there is still a lot to be done in the real estate sector, he said: “On the transformation on ESG and tech we’re still lagging behind compared to other industries like banking. There are still many long-term challenges we need to tackle.”