Editorial August 2011

Sustainable Real Estate: let us take stock

Sustainable real estate can be defined as a significantly efficient real estate in the areas of energy, environment and health, while socially acceptable and at reasonable cost. Closely articulated to urban planning and transportation, it is an essential dimension of the sustainable city.

Since the creation of our blog, three years ago – it was in April 2009 -, the issue of sustainable real estate has increased strongly, both from government and from Construction and Property sector players, and also in the world of research.

The European Directive 2010/31/EC of 19 May 2010 on the Energy Performance of Buildings has updated the previous 2002 Directive, and thus gave a basis of application, in real estate and construction, of the European “Climate and Energy Package” decided in late 2009, the so-called policy of “Three 20 in 2020″: a decreasing of 20% of greenhouse gas emissions and energy consumption compared to 1990, 20% renewable energy, on average in the 27 Member States.

In France, an original device was the “Grenelle de l’Environnement”, a novel negotiation in 2007 between five main bodies of the society (government, local authorities, employers, unions, associations) about the climate change, biodiversity and environmental hazards national policy. “Grenelle” is the name of the street in Paris where is located the Social Affairs Ministry, where important “Grenelle agreements” were negotiated after the big May 1968 strike.

The so-called laws “Grenelle 1 and 2” on August 3, 2009 and July 12, 2010 set the new legislative framework of this new climate change, biodiversity and environmental hazards policy.

In real estate, the change will be radical: division by three of energy consumption in new buildings, down 38% of energy consumption on average in the 3.5 billion square meters of existing buildings within 9 years.

For the most part, these laws will be implemented from 2012, the “Grenelle 2” law requiring to be applicable, not less than 189 decrees and orders, including 44 for real estate and urban planning!

But some provisions are applied with anticipation. For new buildings, requests for “Low Energy Consumption Building Effinergie®” label that anticipates the 2012 thermal regulation, concerned in December 2008, 7,400 homes and 15 non-residential units. On 1 March 2012, they represent 378,870 homes and 680non-residential units.

Another original mechanism was established: the “Grenelle Building Plan”. This plan involves more than a thousand professionals, working closely with government, on the actual implementation of the “Grenelle 1 and 2” laws. The draft decree on the mandatory energy refurbishment of non-residential real estate, mobilizes alone nearly 200 people divided into eight working groups!

For the Construction and Property sector actors, sustainable real estate means a paradigm shift that represents a true cultural revolution: the passage of a commitment to means to a commitment to performance. The whole chain of actors is involved: local authorities, financial institutions, owners, developers, architects, contractors, manufacturing industry, operators and users. It will take some time, perhaps a generation.

Our blog, which highlights the economic dimension of sustainable real estate, provides its readers with documents grouped under three headings: “Policies and Markets”, “Costs and Profitability,” “Finance”.

In the field “Policy and Markets”, the texts show that the engine is above all political. The European Union has set ambitious targets for 2020. The European Commission is already thinking about 2050. In its communication of March 2011, “A Roadmap for moving to a competitive low carbon economy in 2050”, the Commission indicated that greenhouse gases emissions should decrease by 80 % between 1990 and 2050, that is a factor 5. Since sectors such as agriculture and transportation can hardly exceed factor 2, according to the European Commission, real estate is expected to reach factor 10! The market is beginning to follow the political impetus. Some energy and environmental labels are becoming new market standards.

Under the heading “Costs and Profitability”, Economic Research is beginning to provide evidence of market mechanisms, based on the “green value”, mainly for the U.S. and Dutch offices markets and for the Swiss and Dutch residential markets. But there is reason to believe that the “green value” will speak more in terms of discount of buildings threatened with obsolescence, because non-green, rather than goodwill of green buildings. This is another version of the same economic mechanism for valuation / devaluation of property related to sustainability.

The issue of conventional performance and actual results of green buildings is increasingly dealt with integration of operation and user behavior. The use and comfort are beginning to be studied.

The “Finance” section highlights the delay of private finance in sustainable real estate. The movement for the moment mainly relies on public instruments, such as, in France, interest-free eco-loans, energy saving certificates and tax credits. But the energy performance contracts, the public-private partnerships including energy and investment by a third party could know some success.

Our blog aims to contribute to the movement. A lot of articles, reports, laws… are presented and available to readers. The most read document is our analysis on the profitability of sustainable real estate that took more than 4,500 readers, in the two English and French versions. The one about certifications and an interview of AXA Real Estate exceeded 2 500 readers. The text on the European directive, the Green Value Working Group, the International Benchmark on Energy Efficiency Policies Task Group, communications about green innovation exceeded 1 000 readers.

The study “Are green office buildings keeping their promises?” aroused many reactions and, in another field, the “Real Estate, Construction and Energy” Executive Master of Ecole des Ponts et Chaussées, a member of Paris Institute of Technology, that we monitor, is generating interest.

Thank you for your feedback and commentaries!