Sustainability in the real estate market

How can sustainable projects be more profitable?

Sustainability should always be a concern in our daily lives and now, more than ever, we need to act. As students in such an open-minded and prestigious school as Nova SBE is, we have the duty to impose this in our day-to-day lives by trying to make businesses progressively more sustainable.

One business area that has been changing the most is the Real Estate one. People in these markets are shifting their minds into a more sustainable path, even though there is still a lot to improve.

Source: Dengarden

One of the major concerns regarding sustainability is related to climate change: At COP21, the Paris climate conference that took place in December 2015, 195 countries adopted the first ever agreement in which was set a target for reducing negative effects from climate change. One of the requirements of the agreement was to impose a restriction on global warming to a 2°C limit. The World Bank estimates that the real estate sector must reduce CO2 emissions by 36% by 2030, in order for the 2°C limit to be achievable. If the world’s nations do not unite forces to reduce global warming quickly, temperatures may increase drastically in the upcoming decades. Disastrous outcomes can become real if this agreement is not taken seriously by all the countries involved in it.

A body of water with a bridge and buildings in the background

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 Museum of Tomorrow, Rio de Janeiro, Brazil.

Source: Green or sustainable buildings- IBERDROLA

According to The World Economic report “Environmental Sustainability Principles for the Real Estate Industry”, the real estate sector consumes annually over 40% of global energy, buildings originate 20% of the Global Greenhouse Gas emissions, and use 40% of the earth’s raw materials. What people seem to not understand these days, is that most of this sector’s greener options sector can be financially friendly in the medium to long-term. And given that this is a sector in which people do not seek for short term results, Real Estate entrepreneurs should start considering new, greener options.

But how will this work? How can more sustainable projects be more profitable? According to two though leaders in the Real Estate market, Dr. Richard Peiser, the director of the Master in Urban Planning Program at the Harvard Graduate School of Design and Dr. Thomas Wiegelmann Frics, the managing director of Blue Asset Management, honorary Adjunct Professor at Bond University and member of the Harvard Alumni Real Estate Board, many existing properties will successively fall behind when competing for customers and occupancy rates. As a result, they expect that, for those properties, a significant discount for unsustainable practices (called the “grey discount“) should probably start being implemented in the near future. Open minded investors shall anticipate this and feel the impact of such developments and trends in order to reduce exposure to long term risks.

Following a study conducted over 10 years ago by the Real Estate giant Bentall Kennedy, on average, certified buildings have a higher occupancy rate than non-certified buildings: + 4% for LEED-certified buildings and + 9.5% for office buildings. Energy-Star certified (American energy efficiency label) buildings are also better rented than those with no certification (+ 3.7% on the rental price for LEED-certified buildings). But what does this mean in practical terms? Well, it means that buildings are easier to rent – they stay less idle, which reduces costs for real estate operators and owners – and they can also be rented for higher prices, as their value will end up being compensated by lower energy, water, and heating consumption for tenants (and thus leading to decreasing expenses). These houses and buildings are designed to save resources such as energy, water, and heat. By using systems that combine better insulation, a smarter and more economical electrical system or lighting specifically designed to optimize light, sustainable buildings can reduce expenses, especially in the long-term.  So, it is a double win situation: not only will investors benefit from it, but so will consumers.

Source: Ups Battery Center

Our future and the future of our beloved earth is in our hands. Do not hesitate to take a step further in the development of a greener society. Everyone can and should be a part of it! And, if you are an entrepreneur yourself, or if you know of any, be aware that oikos Lisbon is here for you. You can always reach to our consulting department, we are more than pleased to help in any way we can!


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