With the Conference of the Parties (COP26) on climate change having been held in the UK, Glasgow played host to a marquee gathering of world leaders, who deliberated on reducing global emissions and protecting ecosystems. This is of significance to the global housing sector, the largest consumer market in the world. Across both the residential, and commercial, real estate sectors a number of initiatives are underway to support initiatives relating to climate change. 

The challenges in the UK’s commercial property sector, with regards to sustainability, are multifaceted. On one hand, the application of data, transparency and metrics utilising this ESG lens, is in its infancy. So, the allocation of nearly £50bn annual UK commercial investment inflows towards sustainable investments is complicated. Over 87 per cent of office stock has an EPC rating of C or below, necessitating significant outlays to convert.

Despite these challenges, carbon emission reductions and energy efficiency improvements enable outperformance over the long term. Advantages include intangible branding impacts,  adaptability to evolving legislation changed, cost reductions, and a green premium observed in research data. Savills for instance report in their latest findings that office operators are 70 per cent more likely to achieve top decile rental income for buildings with BREEAM ratings of Very Good or better. 

With respect to the residential property sector, the latest government figures indicate that it is responsible for over 20 per cent of UK CO2 emissions. Key impediments for the transformation of housing stock include the inconvenience of decarbonisation works, mitigated evidence of  the strength of the green premium evident in the commercial sector, as well as the upfront cost of retro-fitting and conversions. The Construction Leadership Council estimates retrofitting scheme costs of £525bn by 2040, including £168bn of taxpayer investment, equivalent to £18,750 per home.

Both residential and commercial property will benefit from policy interventions that offer incentives to facilitate the sustainable agenda. The scale and scope of change that is targeted at present is set to enable distinctive opportunities to realise supernatural long term returns whilst simultaneously reducing global emissions, protecting ecosystems, and cultivating stakeholder oriented social value creation.