Investment Managers
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Analysis and commentary from Matthieu de Beauvais, Head of Real Estate Funds – Listed Assets, and Samy Bchir, Chief Investment Officer – Real Estate.
Investors with the skills and ability to deploy decarbonisation strategies can make a difference and create value. The need to decarbonize their entire portfolios is becoming increasingly important for institutional investors. However, the building and construction sector accounts for 37% of global CO2 emissions, and acting on their real estate assets represents a major lever for their decarbonization plan.
In addition, owners who do not take this step run the risk of no longer meeting the requirements of users, who are themselves increasingly attentive to reducing their carbon footprint. As a result, buildings that do not undergo their carbon transformation will become illiquid assets in the more or less long term.
A fundamental trend that also affects users:
The equation is more or less complicated depending on the type of property and the location. We are unable to make a profit on heavy renovation work on office assets in the outskirts of cities, as the metric values are often low there. Conversely, the central districts allow it more easily. First, the appetite of users, especially large enterprises, for centrality is much greater than in the past. In addition, they require labels attesting to compliance with the best environmental standards. Investors will therefore be able to deploy medium- to- long-term strategies aimed at decarbonising buildings in attractive locations.
The decarbonisation of buildings is also a good opportunity to carry out work to adapt them to new ways of working: we are increasing the flexibility of use of the building in order to promote exchanges between employees, and we are improving the user experience (services, fitness, outdoor spaces, etc.). This approach is all the more value-creating as it ensures an increase in rents coupled with a very low vacancy rate.
Defining a decarbonization plan:
Prior to the acquisition of a building, a decarbonisation plan must be drawn up, taking into account, with regard to the expected target rents, the many works to be carried out to reduce its carbon footprint: insulation, heating, air conditioning, lighting, energy used or produced on site, etc. This is what we did with our latest acquisition of an office building to be restructured in the CBD, located at 18 rue de l’Amiral Hamelin, in Paris 16th. As soon as we acquired it, we established an ambitious decarbonization plan that was integrated into our project of works such as connection to heating and district cooling, insulation from the inside, etc. However, this decarbonization plan could be spread over several years. It requires in-depth knowledge of existing buildings and works, as well as good repositioning skills.
The goal of net-zero emissions by 2050 will often require very heavy investments for real estate asset owners, at the risk of severe depreciation, as the market will increasingly distinguish between “green” and “brown” properties. This is why, as part of our operation on 18 Hamelin, we have already targeted the orientations of the tertiary decree until 2050. This perspective encourages us to be very selective, but also to seize opportunities that will involve investment or the financing of decarbonization plans for buildings, which are likely to create strong value.
The CRREM tool
The Carbon Risk Real Estate Monitor (CRREM) tool allows a building to be positioned in terms of carbon emissions in relation to the decarbonization trajectory to be followed to achieve the objectives of the Paris Agreement. CRREM has published decarbonisation trajectories by country and by type of building, which reflect the ambitions to limit global warming to 1.5°C by the end of the century.
The green curve on this example graph shows the decarbonization targets stemming from the Paris Agreement’s ambitions for the type of building concerned (in this example: offices) in the country in which it is located (in this example: France). The black curve shows the carbon intensity of a building. Work is scheduled for 2035 to reduce its emissions to 3 kgCO2e/m2/year, allowing it to be in line with the decarbonisation objectives until 2050.
