Our Thoughts
Tue, 04/06/2024 - 12:00
· 4 min read

Beyond the Headlines: Five Perspectives on Decarbonisation

Five of our ESG experts from across BNP Paribas Real Estate weigh in on what key topics we should keep a look out for when considering decarbonisation.

The Next Generation Of Grade A Is Net Zero

The definition of a ‘Grade A’ office has evolved in recent years. The newest generation of spaces now incorporate progressive sustainable practices, adopting energy-efficient systems and environmentally conscious initiatives that resonate with corporate commitments to net-zero and other ESG priorities. The demand for these buildings is there and setting attractive new rents for landlords. Prime office rents in the UK’s top ten regional city centre markets recorded the largest annual climb in over 20 years in Q1 2024, rising 7.6% year-on-year, according to our Big Ten Report. Yet, the pipeline of Grade A is scarce in all city markets, and this presents landlords with a significant opportunity to retrofit space to capture this demand.

Liam Ridley, Senior Associate Director, Transactions

 

The Rise And Rise Of Retrofitting

The president of the American Institute of Architects said back in 2007 that ‘the greenest building is one that already exists’. Almost 20-years on, this has never been truer. The rising cost of energy, the growing impact of climate change, and incoming regulations on EPCs, are all placing a growing emphasis on the role of retrofitting outdated buildings dependent on fossil fuels. The scale of the opportunity – and necessity – for retrofitting should not be underestimated.

Existing buildings account for around a third of the UK’s total emissions – and 70% of these buildings are expected to still be in use in 2050. Westminster City Council’s ‘retrofit first’ policy – which will require developers to explore the option to retrofit before demolishing buildings– is a sign of what’s to come.

Caroline McDade, National Head of Planning

 

Optimising Data and Technology

As Peter Ducker famously said “If you can’t measure it, you can’t manage it”. In a world where property owners need to achieve onerous decarbonisation targets, it puts increasing focus on the need for accurate and robust data on building performance. Understanding in detail the current energy usage, set against the context of the building operation, is a critical first step in the creation of a roadmap to optimising performance, reducing consumption and achieving net zero. In the future this journey is likely to be increasingly assisted by data analytics and artificial intelligence as the level and complexity of building performance data progresses beyond that which a human can realistically monitor and manage.

Tim Edmunds, Senior Director, Project Management Lead

 

The Importance of Robust Reporting

To achieve success in any strategy requires measures to be in place to evaluate performance against a set of goals and standards. However, organisations are often faced with fractured data, misaligned reporting methodologies, outdated policies and/or legislative requirements when attempting to disclose their ESG performance. Aiming to capture and demonstrate the full value-chain picture, including all direct and indirect emissions, continually improving data quality, and seeking third party reasonable assurance, will support an informed pathway to achieve next zero carbon, whilst promoting full transparency and avoiding the pitfalls of greenwashing.

Pilar Knoke, ESG Coordinator

 

Pricing Mechanism Transparency

In the absence of a widely adopted valuation framework, the real estate sector will likely see increasing disparity between actual prices and modelled valuations, partly owing to the failure to price in appropriate levels of risk in transitioning existing stock to a decarbonised future. Together with a lack of climate awareness and caution towards the formal implementation of a standardised approach, this will produce ‘stranded’ assets - properties that face overvaluation and will likely suffer major falls in value through the challenges posed by climate change on revenue streams, operating costs, capital expenditure and capitalisation rates.

Therefore, industry stakeholders must work together to increase transparency of results of their bespoke pricing mechanisms for climate risks, to increase awareness and appropriately advise increasingly inquisitive investors and lenders alike. Certainly, we face a period where the impact of the decarbonisation agenda will become a progressively more important consideration for both occupiers and investors and, therefore, have a material impact on the value of real estate assets.

Anna Law, Associate Director, Valuations

 

Read the next article, Decarbonisation and it's Impact on Asset Value or discover more from our ESG in Perspective magazine. 

Beyond the Headlines: Five Perspectives on Decarbonisation