Sustainability and the Real Estate Curriculum

1. Sustainability and the Real Estate Curriculum Patrick Brown, Assistant Director (Sustainability), British Property Federation 2nd December 2011

2. What is the BPF? • ‘Representative organisation for those who own and invest in property in the UK. We aim to create the conditions in which the commercial property industry can grow and thrive, for the benefit of our members and of the economy as a whole.’

3. Buildings and Climate Change Mitigation • Climate Change Impact – 47% of UK carbon dioxide emissions come from buildings, with nearly 20% coming from non-domestic buildings. • Resource scarcity and fluctuating fossil fuel prices. • If we want sustainable growth, commercial property must reduce its climate change impact. • Climate Change Act targets.

4. Existing Stock is Key • Only 1-2% of non-domestic stock replaced in each year so substantial number of non-domestic buildings standing today will be with us in 50 years time. • BPF supports a focus on existing buildings, as an 80% overall reduction in emissions by 2050 will be extremely challenging otherwise.

5. Scale of challenge… • Carbon Trust Report ‘Building the Future Today’ said that average building energy performance rating must be 4 grades higher by 2050 than today. We face a significant challenge. • Various academic studies have pointed toward existing buildings as offering some of the most cost effective opportunities for reducing emissions (investor reaps energy cost savings)…

6. Improving the Energy Efficiency of our Homes and Buildings Most Commercial Buildings are Rented… Source: Paul Mitchell Real Estate Consultancy update of IPF report The Size and Structure of the UK Property Market, and Department of Communities and Local Government. The voice of property

7. Splits in Energy Procurement, Use, Control

8. Barriers to Energy Efficient Retrofit Arise (1) • 1: Buildings have long lifecycles, with path dependency arising from design and technical decisions. • 2: The majority of commercial property (whether in terms of value, number, space or emissions) is separately owned and occupied. In most cases, landlords provide energy to their tenants to some degree, which means if the landlord invests in energy efficiency the tenant gets the savings.

9. Barriers to Energy Efficiency Arise (2) • Operational issues (such as the disruption caused to occupiers when buildings are changed). • Information related issues (unavailability or poor transfer between landlords and tenants of data relating to energy use). • Commercial issues (varied and uneven distribution as between landlord and tenant of the costs and benefits of, and control over, energy use and changes in buildings or behaviours designed to reduce it); and • Legal issues (constraints within leases on how costs and benefits associated with emissions and related expenditure or behaviour change can be allocated between landlords and tenants).

10. Barrier 1: operational • Disruption caused vs guarantees in the lease of service provision. • All leases in a multi-let building unlikely to come up all at the same time. • Asset certification tends to tell us that energy efficiency stems from new kit not management. • Leads to landlords and tenants preferring to undertake retrofit when buildings are vacant.

11. Barriers 2: information • Old adage ‘If you can’t measure it, you can’t manage it and if you can’t manage it you can’t reduce it.’ • Much of Government and industry mandated measurement and reporting deficient and theoretical. Need actual measurement. • Four success factors: • Actual performance (not theoretical) • Complete • Boundary setting approach • Context • Operational measurement, particularly in energy critical for engaging with tenants. Make performance visible a spur to action.

12. Barrier 3: legal • The lease’s approach toward retrofit (is it an improvement or a replacement? Cost implications). • Green Leases: sign in haste, repent at leisure. MOUs more popular but non-binding and time limited. • CRCEES a particular case in point. • More fundamental reform? Not there yet but unpalatable truth may be dawning.

13. Barrier 4: commercial issues • Several studies pointing toward a ‘green premium’ for buildings but valuation community thinks this is unlikely to manifest. ‘Green’ buildings likely to become standard over time and deficient buildings will have their value eroded. • Marginal cost of energy but some occupiers beginning to factor energy price rises into their equations (Ofgem and Deutsche Bank reports).

14. What if we don’t get a binding international agreement? • National, regional, local, community efforts. • Key role for developers and property owners. Will localism facilitate this? • Probably increased importance of adaptation and preparation for a 4 degree rise.

15. Buildings and Climate Change Adaptation Increased Weathering Resource Efficiency Managing internal comfort in climate extremes while reducing energy use. Managing excess and too little water appropriately. Intermittency. Pressure on sewer infrastructure. • Increased risk of flooding. • Fabric and structural resilience to extreme weather (impact on choice of components).

16. And finally: Sustainability vs Value • No uplift in value historically as a result of improved sustainability performance. • In the future: green premium unlikely. Why? • More likely that green buildings will become the new prime real estate. As a result, non-green buildings will find that their value discounted. • Revision of Valuation Information Paper 13 imminent.

17. Patrick Brown, Asst Director T: 0207 802 0108 E: pbrown@bpf.org.uk W: www.bpf.org.uk THANK YOU