Our study helped us to identify three key dimensions of sustainability-focused real estate investment that enable us to compare different regions and their progress towards greener portfolios.
These three dimensions are strategy, appetite, and level of investment:
- Strategy: addresses existing strategies, commitments and approaches to sustainability, both now and in the future
- Appetite: relates to, amongst other factors, willingness to stop investing in unsustainable buildings and willingness to pay a premium for sustainable buildings.
- Level of investment: concerns existing and future makeup of property investment portfolios, including the proportion at risk due to failure to meet certain sustainability criteria
Our scoring system was built by clustering together certain questions from our opinion research study and assigning scores to those questions. We then calculated the scores of the investors in our sample along each dimension and overall and compared them on regional levels to generate benchmarks.
Explore the regional differences in the interactive diagram below. Select a region to see how they compare to each other.
Asia Market Spotlight
Hong Kong has led the way in prioritizing green initiatives and proptech innovations, but the rest of the region is yet to follow. This is partially due to the lack of consistent sustainability building standards across the continent. More developed markets such as Hong Kong and Singapore, as well as other business and manufacturing hubs across the region, have green building standards in place. However, other areas are still in the process of developing recognized standards.
Our study reveals that Asian firms* are particularly concerned about accusations of greenwashing: 82% of Asian firms say that the risk of being accused of greenwashing is a barrier to real progress in their investment strategy around sustainable buildings, compared to an average of 66% across all markets. The lack of consistent standards could be driving this concern.
* Respondents were based in China, Hong Kong and Singapore
European Market Spotlight
The Energy Performance of Building Directive (EPBD) – the main piece of EU legislation addressing decarbonization of buildings – is currently under revision, with the recast negotiations approaching their conclusion. Buildings are currently responsible for over a third of EU emissions and 40% of energy consumption. Currently, 75% of Europe’s buildings are classed as inefficient and will need to be upgraded by 2050 if the EU is to meet its net zero targets.
Our study shows that although Europe is setting precedents in terms of sustainability legislation, European investors’ attitudes do not necessarily match. Although European firms in our study (based in the UK, France and Germany) are more likely than firms from any other region to say they have a public commitment to sustainability, they are the least likely to say they are actually factoring sustainability into their day-to-day decision-making: 68% of European investors say that sustainability performance is an important factor to their firm when making real estate investment decisions, compared to 84% of US investors and 83% of firms based in the Middle East.
Markets now need to find a way to reach the ambitious goals that have been set.
Dr. Thomas Prüm, Real Estate Finance (Frankfurt) at BCLP
Middle East Market Spotlight
Due to the global rise in oil prices, and the resulting economic growth, the Middle East is seeing continued investment in real estate and increased activity from occupiers and investors in the market. In 2010, the United Arab Emirates announced the implementation of green building standards throughout the country, while Saudi Arabia introduced a green building rating system called Mostadam in 2019.
Our research finds that over half of investment firms based in the Middle East* have a public commitment to sustainability and over four in five (83%) are prioritizing sustainability performance when making real estate investment decisions.
*Respondents were from the UAE and Saudi Arabia.
UK Market Spotlight
In UK commercial real estate, the gap between the top of the market and the rest of the market is growing, in terms of asset prices, rent and vacancy rates. Investors expect a significant discount for holding assets that are not premium and that have lower sustainability standards. In London in particular, there is high demand for top-tier buildings with strong sustainability standards in city center locations, while poorer-quality buildings in less desirable locations are increasingly considered unoccupiable and unfinanceable. In between these two extremes are buildings that need significant investment to get them up to standard. Many large corporates are taking advantage of leases ending to both reduce their office space due to increased remote-working, and to find more energy efficient buildings that move them closer to their sustainability targets.
US market spotlight
The EU tends to be seen as a trailblazer in terms of sustainability regulation, while political and media narratives regarding the sustainability agenda in the US often suggest that it is behind the curve. However, our study indicates that US-based investment firms are generally ahead of their European counterparts in terms of their sustainable real estate attitudes and appetite. Over eight in 10 US investors (84%) say that sustainability performance is an important factor to their firm when making real estate investment decisions, compared to just 68% of European investors. And on average, US investors say that 41% of their current real estate portfolio meets high sustainability standards, compared to an average of 35% of European investment firms’ portfolios.
The sustainable real estate landscape in the US can be complex, with regulations and approaches differing at a state level. This can be seen as an advantage, as this allows states and regions to manage their individual legislation to local environmental needs. As well as this, local US laws have required benchmarking, that oblige utilities to share whole-building data. Accessing this level of building data has been a weak spot in Europe due to data privacy legislation.
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