Real Estate Investment Trends: The Rise of Sustainability-Focused Opportunities

SUSTAINABILITY

By: Velorine

Global efforts to reduce the property sector’s environmental impact are now creating new ways to enhance returns in Asia Pacific

Multiple factors driving increased real estate sustainability worldwide are converging to create new opportunities for investors in Asia Pacific. COVID 19 has further raised awareness amongst cities, occupiers and investors of the urgent imperative to be better custodians of our precious planet. We’re all increasingly aware of the impact and cost of climate change. Today many people buy responsibly sourced products, vote for environmentally-aware political parties, and shift away from inefficient buildings. The next generation of business leaders and policy makers is now taking their place on the world stage, and driving change faster to reshape our stewardship of the planet.

Answering the call of public opinion, government regulators are imposing more stringent requirements on construction and energy usage. Many businesses committed to sustainability are more productive, more easily attract and retain talent, and even have higher share prices. Real estate investors, facing economic and geopolitical challenges, increasingly focus on strategies that display resilience, minimise systematic risks and are future-proof.

Sustainable buildings

Increasingly, governments are incentivising the development or retrofitting of commercial, residential and industrial buildings to make them more energy and emission efficient. 

There is evidence that tenants in some cities let their environmental awareness influence their location choices. Tech tenants are increasingly prepared to pay a premium to occupy a LED certified building or make their premises carbon neutral. While such buildings can cost more to operate, that can be offset by higher rents to produce higher cash flow for investors.

Sustainable infrastructure

The investment upside from sustainable infrastructure comes from increasing efficiency and reducing emissions. Benefits can include lower operating costs, risk mitigation, and brand enhancement.

Increased asset values are a further consideration. According to the World Green Building Council, the percentage of owners reporting that new green buildings have an asset value more than 10 percent greater than those of traditional buildings has nearly doubled, to 30 percent. 

Class A and B commercial real estate with higher performance is driving client demand. Clients who are paying a premium for space expect it to be optimised. Front office and public-facing space expect to have the elements that come with sustainable design, such as good ventilation, lighting and automation.

Sustainable funds

Institutional and private equity investors are expected to increasingly develop impact investing plans as awareness of the social and environmental impact of their investment decisions grows. Around one fifth of insurance companies and pension funds are developing impact investing plans, and 44 percent are considering the strategy, according to the UK National Advisory Board on Impact Investing. 

Funds are targeting areas which provide attractive returns while meeting real needs. Such strategies could focus on affordable housing, renewable energy or green buildings, to name a few. 

Enhanced government incentives and heightened public awareness are factors that may drive further proliferation of impact investing funds over time.

Sustainable cities

Beyond regulating and stimulating sustainability of individual buildings, governments in Asia are also consciously and proactively working to transform their cities to make them smarter, more liveable and more compelling. 

Singapore is an example of a city that has started on its sustainability journey, by decentralising its CBD, encouraging the redevelopment of older office buildings in the CBD into mixed-use integrated developments and reducing the use of private transport. 

Similarly, Beijing has restricted the size of commercial developments in the central area and targets to reduce the population in its six central districts by 15 percent from 2014 levels.

These initiatives present opportunities for astute real estate investors to capitalize on, participate in the process and acquire the right assets.