Value creation the aim as focus shifts to existing buildings

The focus will increasingly shift to existing buildings because of regulatory pressure and environmental concerns, experts agreed at Real Asset Media’s ESG-Breaking New Ground: Maximising Development & Redevelopment Opportunities briefing, which was held recently at PwC’s offices in Frankfurt.

Thomas Veith, Partner, Global Real Estate Leader, PwC

“In the past the discussion around ESG was about cost, but now it has switched to a debate about value creation,” said Thomas Veith, PwC partner and global real estate leader. “There’s a realisation that retrofitting and transforming buildings is the big challenge but also the great opportunity. Value-add transformation to green is the best possible strategy.”

It is about value creation but also value protection, as investors realise the very real risk of stranded assets.

“Investors have to factor ESG into their business plans because they might not be able to sell their assets if they are not compliant,” said Christian Scheuerl, managing director, Newworld Investment Management. “There are so many buildings out there which you can’t do anything with unless you spend a lot of money and devote a lot of energy to upgrading them.”

Long-term investors are already on board and see the benefits of investing in making existing assets sustainable.

“We have a 50-year horizon and that is the driving factor,” said Jens Thale, head of construction, P3 Logistic Parks. “We have assets built in 2000, when no one knew about ESG or climate change, and we’ve had to retrofit them. It costs money but the return on investment is clear: 100% of our buildings is leased out.”

Every P3 building has BREEAM Excellent certification as a starting point, the foundation on which to build using a combination of measures.

Jens Thale, Head of Construction, P3 Logistic Parks

“Insulation is easy to do, while other interventions are more complex, like heating the building,” said Thale. “There are so many strategies, technologies and regulations and we need to find the right solution and embark on what will hopefully be the right path. We’re on a quest, a constant fact-finding mission like everyone else in the market.”

Gathering all the relevant data and understanding that regulations will only become more rigid, is the first step to charting the path forward. But being a large company with resources does not necessarily make things easier.

“Scale can actually be a disadvantage,” said Thale. “We’re a multinational so we have to deal with different rules in every country. In Germany, for example, putting solar panels on the roof is very complicated.”

In the residential sector as well as in logistics, having a long-term vision means planning to protect long-term cashflows and ensuring the buildings are not sitting idle for long periods of time.

“Flexibility needs to be in-built,” said Scheuerl. “Design student housing that can be easily turned into bigger apartments for families, or into senior accommodation. Never rely on a single idea, but be ready to adapt quickly to fast-changing circumstances and market demands.”

A long-term vision is not the norm yet, as there are plenty of people who choose to prioritise short-term profit and stick their heads in the sand when it comes to ESG imperatives.

But reality will soon catch up with them, said Anna Tsartsari, co-founder and head of ESG and sustainability at BE Design: “In the next year or so there will be a lot of regulation and more emphasis on embodied carbon, so existing buildings will become more valuable.”