Industrialising the global retrofit market

With the international community increasingly focused on climate action in the countdown to COP26, the global real estate sector is coming under an intense spotlight.

As one of the most significant contributors to global carbon emissions, the way that the real estate industry constructs, manages and operates built assets is a central focus for governments and policymakers in the race to reach net zero.    

Yet, while a lot of investment and innovation has focused on reducing carbon in new-build construction, this is only part of the problem. Given that 80 percent of the building stock we will have in 2050 has already been built, battle lines should arguably be drawn with greater emphasis on reducing the daily operational emissions created by inefficient existing properties.

Retrofit is therefore key to achieving net zero with its focus on optimising the energy performance of existing assets. However, our 2021 International construction market survey points to a nascent retrofit industry plagued by low maturity, risk and poor practice.

Without urgent intervention at all levels, the retrofit market could over-heat within the next five years, leading to price escalation, delays and poor performance, fuelled by a shortage of green materials and skills.

A transformational global opportunity

Net zero is a singularly global challenge and requires an “all in” approach across nations. The drivers for retrofit are similarly global, with many nations experiencing high levels of energy wastage, fuel poverty and an increase in excess deaths due to overheating or underheating as climates change.

However, in our survey most regions reported that less than 20 percent of projects have a commitment to net zero carbon, although 85 percent expect commitments to increase within three years. Even within this low base, 48 percent stated there was currently not enough capability in their local supply chain to deliver upon carbon reduction ambitions and 69 percent are already reporting skills shortages for green collar jobs.

In terms of the retrofit journey the construction sector needs to embark on, parallels can be drawn with the rise of the health and safety agenda over the past 30 years. However, the retrofit market cannot take decades to mature – a great leap forward is needed within the next five years to mitigate against risk, meet demand and unlock a sizeable opportunity.  

In the United States alone, more than $279 billion is set for investment in retrofit across the residential, commercial, and institutional market segments, according to The Rockefeller Foundation. This investment could yield more than $1 trillion of energy savings over 10 years, equivalent to savings of approximately 30 percent of the annual electricity spend in the US.

All major markets have the opportunity to make huge cumulative economic, social and climate gains from a well-orchestrated retrofit programme across aged real estate assets.

Building a scalable model

Rapidly scaling up retrofit activity requires radical interventions and systemic change. Despite a recent uptick in activity in some key markets, typically focused on upgrading public sector stock, the retrofit sector still has the hallmarks of being a ‘cottage industry’ that is small scale, high intensity and decentralised.

Industrialising the existing market without first transforming the way it operates would be a strategic misstep. The current UK retrofit sector is subsidy dependant and focussed on small scale, bespoke solutions on individual homes that risk delivering limited fuel or carbon savings, with no clear return on investment.

We need to break this cycle, creating a simple and desirable retrofit product that is both business and consumer focused. To play its part in addressing the climate crisis, retrofit needs to become a fully self-funding market with a programme-led, lean and digital delivery model.

Bridging the viability gap

The UK arguably leads the world with its retrofit accelerator programmes for homes and workplaces championed by the Mayor of London and focused on public sector assets. The local authorities, housing associations, academic and health institutions benefitting from the programmes have a clear interest in delivering investment that will reduce bills for residents and occupiers and extend the lifetime of their properties. As long-term owners, these institutions and not-for-profit businesses are able to offset upfront costs.

These programmes are still stimulated by subsidy – but in a targeted way that is acting as seed funding to build retrofit expertise and capacity which will in time bring down costs. The recent formation of a new national Innovation Partnership effectively combines the buying power of public asset owners and builds a stronger bridge with the retrofit supply chain. This is already driving economies of scale and incentivising suppliers to bolster retrofit capacity.

In time, the ambition for these initiatives is to bridge the viability gap, lowering barriers to entry into the market so as to encourage a wider group of asset owners to invest in a retrofit product that is commercially attractive, self-financing and environmentally sound.

Exporting expertise

For national industries and governments seeking to promote green industrial strategies, the opportunity to not only build but also export expertise is significant. Very few markets have clear plans in place around how to retrofit legacy stock at pace and scale.

In the UK, a centre of excellence has recently been established to further accelerate the sharing of retrofit knowledge and expertise beyond the capital. 

The EU recently announced its ‘renovation wave’ whereby it is putting significant public subsidy into the retrofit of 35 million buildings over the next ten years, creating more than 160,000 new jobs in the construction sector. The scale of this investment could fast-track the EU to a leadership position in the retrofit market, giving the bloc invaluable exportable skills and knowledge.

Start of the green industrial revolution

We face an unrivalled opportunity to move towards a virtuous circle of retrofit investment that will ultimately help generate create a ‘gold standard’ model for retrofit, which can be rolled out across global regions.

Market adoption of new practices and upskilling workers can typically take multiple decades, but when it comes to net zero, we do not have the luxury of time. We are set to see an exponential rise in demand for retrofit projects in the coming years from the current low base – growing in both complexity and scope. To meet this requirement, it is imperative we rigorously apply construction sector best practice.

Many of the areas that have been a focus for the construction sector for decades – digital design and build, off-site manufacture and precision engineering – will be critical to the successful delivery of retrofit programmes. BIM, for example, provides essential modelling to build a clear picture of whole life carbon impacts.

Retrofit is a rare, greenfield opportunity for our industry that is driven by a critical and socially motivated purpose.

It is therefore our collective responsibility to use retrofit as a catalyst for a ‘green industrial revolution’ – which will help our market, clients and future generations to thrive.