The real estate industry and climate change

Climate change has become a reality and real estate is one of key economic sectors in this. Buildings are responsible for approximately 40% of energy consumption and 36% of CO2 emissions in the EU[1]. So far, the industry has concentrated its effort, although still much limited, on the construction and management of buildings, which could be quantifiable in the green certified prime office stock

It is therefore critical that the real industry plays its part in reversing the negative trend for the climate and the environment, reveals Environmental Outlook 2020, a report produced by a team of analysts of EMEA Research & Insight, Cushman & Wakefield.

The experts of global real estate services firm Cushman & Wakefield have identified three key environmental trends relevant to the real estate industry.

New policies

Legislators continue to press the real estate industry. “In Europe[2] we identified more than 1,500 national policies and measures (PaMs[3]) on climate change mitigation, 74% linked to the implementation of key EU directives. Energy consumption and energy supply made the majority (44%) of the reported policies, followed by transport (21%). Improving energy efficiency of buildings is among the main goals of these policies,” says Grzegorz Dąbrowski, Property Manager, BREEAM IN-USE Assessor, Asset Services, Cushman & Wakefield.

The Energy Performance of Buildings Directive (EPBD) and the Energy Efficiency Directive are the two key EU policies. Both focus on the energy efficiency of buildings.

The EPBD has been recently revised and EU countries have until 10 March 2020 to write the new and revised provisions into national law. The revision covers a broad range of supportive measures that will help national governments in the EU boost the energy performance of buildings and improve the existing building stock. One of the new objectives is to support governments to create a path towards a low and zero-emission building stock in the EU by 2050, by implementing national roadmaps to decarbonise buildings.

“These changes will directly affect the real estate industry, which in turn needs to speed up the process of improving the quality of buildings and their efficiency, regardless of the vicious circle of blame,” says Grzegorz Dąbrowski.

Investors still hesitant

Investors are still waiting for occupiers to confirm a strong demand for ‘green’ properties, to create a defined market segment. There is still no evidence that corporate occupiers are willing to pay increased or premium rents for such assets. On the other hand, investment managers are increasingly aware that, if they are not able to include climate risk[4] in their pricing, this will probably impact on their portfolio as it could hurt the long-term profitability of their assets.

“But market players are quite far from understanding climate risks enough to price them in today. As with electric cars or organic vegetables: people want them, they know they should have them, but they don’t necessarily want to pay for them,” says Grzegorz Dyląg, Head of Asset Services Business Space, Asset Services EMEA, Cushman & Wakefield.

Data analysis in estimating climate risks

Tools and technologies are emerging across the real estate sector to help investors to make a better connection between pricing and climate risks. Such tools analyse the vulnerability of assets to climate risks and their impact on market value. Data is used to navigate the planning and costing of necessary restructuring, remediation and mitigation work, alongside with an estimate of the impact of the work on the value of the asset. This will be projected as CAPEX in mid-term and long-term in the valuation model in order to define a financial work plan for the asset.

The Environmental Outlook 2020 report is available for download at:

[1] The Energy Performance of Buildings Directive, European Commission, January 2019

[2] European Environment Agency (EEA), data at 2017

[3] PaMs is defined as all instruments which aim to implement commitments under the UNFCCC, which may include those that do not have the limitation and reduction of greenhouse gas emissions as a primary objective.

[4] Climate risk in the economic and financial world reflects the exposure of economic agents, as companies or institutions, to climate-change impacts on their business activities. These impacts can directly affect the value of assets, such as sea-level rise, hurricanes, extreme heat, etc. (physical risks); or indirectly affect it as transition risks. The latter are those that result from a shift to a lower-carbon economy and using new, non-fossil-fuel sources of energy. These include regulatory changes, economic shifts, and the changing availability and price of resources, such as potential changes in policy landscape, technology, and other market forces, in response to climate change that affect the real estate and land use. Source: Cushman & Wakefield based on Novethic and ULI (Climate risk and real estate investment decision-making)