Green buildings backed by sustainable finance will drive real estate’s recovery from the pandemic

James Cameron Global Head of Commercial Real Estate

27 Jul 2021

The COVID-19 pandemic has meant that working from home has become the new normal for billions of people, at least temporarily. Despite this, the commercial real estate sector remains confident in its resilience and is positioning itself at the centre of the global consensus that we must ‘build back better’ as pandemic restrictions recede.

Behind that confidence is a growing demand from tenants for greener, healthier and more flexible business premises. These low-emission, people-friendly spaces are recognised as being good for employee wellbeing, good for the planet and good for a company’s carbon profile.

At Standard Chartered, our confidence in real estate as an asset class for the future is reflected in the robust valuations and demand we see for well-located properties that incorporate green design elements.

Key drivers for green commercial real estate

Legislation and regulation are key motivators for green real estate, especially in OECD markets. In light of the need to minimise real estate emissions to meet Paris Accord targets, new buildings are increasingly required to meet high standards for sustainability during construction and operation. Emerging economies are also starting to adopt similar standards, broadening the geographical scope for green real estate.

We’re also seeing a greater need for transparency on the sustainability impacts of investment decisions among institutional investors, for whom real estate remains a popular asset class, with green real estate attracting the attention of pension funds, the insurance sector and sovereign wealth funds.

From a tenancy perspective, active consideration of the contribution of real estate to a firm’s carbon footprint is also driving demand for green and energy-efficient buildings.

Consequently, the evidence indicates that green and sustainable real estate provides superior economic outcomes in terms of rents, sale values and tenancy performance.

A skyline that blends old and new

In addition to new buildings, sustainability considerations for existing buildings will be key. Around two-thirds of today’s buildings will still be in use in 2050 and many of these assets will need to be upgraded to meet modern efficiency and emissions standards, as well as to attract tenants seeking ESG and wellness workspace attributes.

Bringing older buildings into the green real estate asset class will occur in developed countries and will require large-scale investment. At Standard Chartered, we are working with our clients to structure and support investment opportunities to allow the acquisition and retrofitting of well-located, existing building stock to improve the energy efficiency profile.

Conversely, the transition to green commercial real estate in emerging markets will largely be driven by newly built property, and over time we expect to see an increased availability of capital to fund green projects in these markets. Given our institutional footprint across both developing and developed markets, we are well-placed to assist our clients globally in understanding how best to approach the green real estate boom.

As the pandemic recedes, people returning to their offices will increasingly demand that their work spaces be greener, healthier and more sustainable. From the perspective of corporates looking for a pathway to net zero and investors with a growing focus on sustainability, green commercial real estate offers opportunities to meet targets across a range of business and environmental objectives.

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