Accelerating global real estate decarbonisation
Regardless of the outcome of COP26 in Glasgow, one thing is certain: governments alone cannot fix the climate crisis. Businesses have a critical role to play in accelerating the pace and scale of change.
Increasingly, real estate owners and occupiers are making pledges to reach net zero within relatively short horizons. More than 20 percent of the world's largest corporates, worth sales of more than $14trn, have now committed to net-zero targets, but the road map to meet those commitments is often unclear.
For real estate teams responsible for diverse and complex global portfolios – whether a tech company, logistics operator, or financial institution – they are facing an unprecedented challenge to decarbonise in a cost-effective and coordinated way.
A complex landscape
Many real estate teams have already embarked on their net zero journey. However, activity is often piecemeal, slow and focused on individual assets rather than portfolio-wide solutions.
When it comes to assessing carbon performance, the construction industry has a bias towards new builds – often it appears easier to design more carbon efficient buildings from scratch given the new technologies and approaches now available.
However, those leasing space are likely to find themselves restricted by a shortage of new low carbon options in key business hubs. Unless an increased pipeline of ‘green’ stock is rapidly brought to market, this could lead to increased competition and cost escalation. For assets with strong sustainability credentials, a ‘green premium’ is likely to emerge over the coming years.
Making more efficient use of existing building stock is key to easing market pressure.
A stronger environmental case can often be made for adapting and reusing a property, rather than demolishing and building new. Portfolio and asset managers need to understand how they will bring existing stock into line with the performance standards for new structures.
For owned assets, there is a clear argument for retrofit programmes but more progress needs to be made in this area to commercialise and accelerate the skills, technology and market capacity required to expand this market.
Off-setting the problem?
Given the complex backdrop, offsetting looks an attractive option – but it comes with its own pitfalls and risks.
In the UK the real cost to offset a tonne of carbon is around £70 currently. This is likely to rise to as much as £150 per tonne before the end of the decade, according to UK Green Building Council estimates. An over-heated off-set market is a key risk that needs to be built into future planning.
To be robust, any off-set schemes used by real estate owners should be accredited. They should also form part of a longer-term plan which recognises the need for off-set strategies to evolve – for example shifting from removal projects such as investment in renewables, to replacement through habitat creation.
An agile response
It’s clear there is no quick fix solution to decarbonise real estate portfolios at scale. From problems with skills availability to asset shortages and regulatory changes, the road ahead cannot be viewed as a fixed path.
All businesses need an agile route map that can overcome these market challenges as they change and shift over time.
Starting with a clear baseline
Stage one involves establishing a clear baseline from which to evaluate the scale of the task and track progress.
For many businesses, achieving net zero means reducing their business carbon loading by 80 percent of what it is today. Achieving this drastic reduction requires a programmatic plan of tangible, achievable activity.
Breaking down a decades-long challenge into a series of short-term milestones, with clear controls and parameters set around them, will be fundamental to success.
Over the coming years, in many developed nations climate goal reporting is likely to become mandatory. Real estate teams should get ahead of this by setting in place a transparent approach now with the right tools to clearly measure and articulate progress made – so this can be shared with increasingly expectant employees, shareholders and regulatory bodies.
Maturing net zero delivery approaches
For real estate teams grappling with their global decarbonisation programme, a key issue is the lack of mature models and industry best practice from which to learn and drive progress.
In particular, the supply side in this area is very immature. This makes it difficult for real estate teams to procure the right skills and resources from a thin base. In our 2021 International construction market survey, we found that seventy percent of global markets are seeing green skills shortages.
Gaps and shortfalls on the supply side need to be anticipated and planned for so these can be fed into the route map – as they will impact timescales for the delivery of certain goals. Where possible, investments in skills and capacity should be made ahead of time.
Capacity and capability issues are not just a supply chain issue. Many businesses lack the right skills-set within their own organisation to manage their decarbonisation programme effectively. As companies rush to hire and upskill, a war for ‘green’ talent is likely to gather in intensity, driving up hiring costs across the whole of the industry.
Importance of the integrator
Given the varied work break down structure required to achieve net zero, which crosses multiple workstreams – from asset acquisition and disposal, to technology investments, retrofit and offset strategies – it can be difficult for real estate teams to align capabilities across all areas in a streamlined way.
This highlights the importance of a new ‘integrator’ role to draw all these capabilities together in a holistic way across a company’s entire portfolio.
As well as getting the supply chain to operate more productively and collaboratively, an integrator can also help bring together a new generation of industry partnerships to unblock key obstacles to progress. This could mean making recommendations on new funding models and smart deals which reduce immediate capital outlays and make green options more economical.
In the future, we could see the emergence of “Net zero-as-a-Service” – where clients outsource to a partner who can plan, execute and demonstrate value for money across their entire real estate decarbonisation programme.
Programmatic thinking drives progress
Dynamic programme management can help real estate teams to face the net zero challenge with confidence. Setting and adjusting annual actions, on a planned, controlled, reported basis will give ongoing assurance and clarity that key steps along the journey are being taken.
Inevitably, what real estate teams set off to do and what happens in practice will be different, given the complex interplay of factors being contended with. In this context, adopting the mindset and approach of the technology sector will be beneficial, with the most successful businesses being those prepared to ‘fail fast’ and learn as they go.
Like the tech sector, our industry needs to be fully ‘open-source’ if it is to realise its net zero vision. Best practice should be shared, and skilled talent should be pooled in a much more collaborative way than our sector has traditionally worked.
Decarbonising real estate on a global scale is essential to secure our planet’s future. If we work together to get there, everyone wins.