Real estate and sustainabillity – Translation of an article that appeared in Finance, Slovenia’s daily financial newspaper, on Tuesday 19th September 2017

By Jacqueline Stuart, MRICS

In light of the devastation caused by hurricanes Harvey and Irma, it is hard to imagine that there are still climate change deniers at large in the world. Hopefully the effects on Donald Trump’s caribbean estate on the island of St. Martin, and resort in Florida, might make him rethink his position as the world’s leading climate change sceptic. Global warming did not cause hurricane Irma, but made her far worse – the ocean is 1 degree warmer than usual for this time of year, this added fuel to the fire of the monster storm during peak hurricane season.

Last winter the results of climate change were visible in most Alpine resorts. Many of the pine trees are dry and dead, decimated by acid rain. The snow cover was pitiful, and the temperature so high in February that it felt more like late spring than winter. This past summer, heatwave Lucifer spread over the whole of southern and central Europe, creating unbearable weather conditions resulting in at least 5 fatalities.

Climate change is a reality, and it is doubtful that any living thing on our planet will remain unaffected.

Global warming is a misnomer, many people assume that climate change will mean enjoyably higher temperatures. But in fact it will create entirely new weather patterns. The UK for example enjoys wet but mild winters, thanks to the gulf stream that originates in the gulf of Mexico and stretches all the way to the north atlantic. Although Scotland is on the same latitude as south Scandinavia, palm trees thrive on the west coast. Temperatures are 15 to 20 degrees warmer in winter than areas in north American on similar latitudes. The Arctic is warming twice as fast as the rest of the planet, and scientists are fretting that the melting ice caps could stop the gulf stream altogether – it has already slowed by 20%. No more gulf stream, no more ambient climate for the UK. The country is ill equipped to cope with sub-arctic temperatures with poorly insulated buildings and insufficient infrastructure to deal with snow. Many cities and low lying islands all over the world will disappear into rising oceans, fated to become forever Atlantis.

Developments and bank finance

Most European banks decline to lend to ski resorts under 1,400 metres – they consider it too risky, in spite of the increasing reliance on artificial snow. It is hard to imagine that bank finance will be available in future for any development in Slovenia anywhere at risk of floods.

Interestingly enough, research from the US shows that commercial real estate loans secured with buildings with green certification, are 30% less likely to default.

Fannie Mae, the largest lender to the US residential market offers borrowers for homes with a green certificate a 10 basis point reduction in the interest rate.

Sustainability and the value of commercial real estate

The RICS is Europe’s largest association of real estate valuers. Members are encouraged to continuously seek to improve their knowledge of sustainability so that they are fully aware of any new developments that may have an impact on value. This includes new technologies, legislation, public policy and fiscal measures, as well as the wider market’s attitudes towards sustainability. The influence and impacts of sustainability features vary across local markets and from country to country. There are a number of organisations that provide certification to sustainable buildings, the best known are LEED (USA), BREEAM (UK)  and DGNB (Germany). So far we have only one certified building in Slovenia, but more are expected. Many of Slovenia’s older buildings are poorly insulated, which results in very high energy consumption. The most sustainable of Ljubljana’s office towers have service charges of only 2.1€/m2/month, the least energy efficient have charges of up to 6€. This has a big impact on achievable rents because occupiers consider the total costs, not just the rent. In New York, commercial buildings are obliged to publish their annual energy consumption. It is not hard to imagine a day sometime soon when poorly performing buildings get taxed.

Global companies are under increasing pressure from their shareholders and other stakeholders to minimise their carbon footprint. Choosing energy efficient buildings is an effective way of doing this and we see in our business that global occupiers prefer newer office towers. There is not a huge choice in Ljubljana however, and often at lease expiry companies want to relocate but simply cannot find alternative premises in locations that suit their needs. The office project pipeline will increase some time soon, providing much needed, better quality office space.

What is a sustainable building?

Sustainable buildings are typically designed or refurbished to achieve longer life cycles. They most likely have superior resource utilisation and ecological footprints, and design features that impact on factors such as:

• Internal natural light distribution
• Natural ventilation
• Shade and the solar path, high in the summer and low in the winter

Location and accessibility are also important. A sustainable building should be well placed to allow occupants to travel to work on public transport. The Tivoli Center office building in Ljubljana recently installed additional bike racks and a communal shower to encourage occupants to cycle to work.

Sustainable development

Sustainable development is defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. This is being translated worldwide into planning policies and regulations.

London is so congested with traffic that planners have taken drastic action to reduce the number of cars. Developers of some new residential projects are not permitted to provide parking spaces. Furthermore, anyone who buys one of the new homes is not permitted to apply for a resident’s parking permit.

Car sharing schemes are expected to grow, and the benefits for cities are clear. Each shared car takes 17 privately owned vehicles off the road. Ford and BMW have launched car sharing schemes in London, to complement other private and public initiatives.

Legislation and policy trends

There are international corporate benchmarking and performance measurement schemes that enable companies to systematically embed their corporate responsibility policies throughout all aspects of their businesses, including property strategies. Schemes such as the CEN standards and ISO 14001 measure a company’s progress. These tools are currently used mainly by global companies but this will  change, and be adopted by smaller businesses in time.

Energy performance certificates are mandatory in the EU for anyone renting or selling real estate. This is an important step forwards in transparency, allowing tenants or buyers to make informed choices.

Cities such as Vancouver have changed their planning regulations to ensure that all new buildings from 2020 onwards will be carbon neutral or carbon positive.

What can we do?

Most people want to be environmentally conscious and to make a difference, but is often hard to see how, particularly if you work in a small or medium sized company. At S-Invest, we became carbon neutral this year. We calculated our carbon footprint for 2016 with the aid of one of the carbon calculators readily found on the internet, and offset our carbon emissions by supporting the reforestation charity, One Tree Planted, to plant 200 trees in Haiti. The small island nation needs reforestation help more than any other country. With only 2% forest cover, Haiti is in desperate need of trees. Despite its government’s best efforts, the nation’s economy has been ravaged by natural disasters and hard times, making tree planting a challenge, and they need all the help they can get. Tree planting also has a global impact, by absorbing CO2.

We replaced the company car with a Hybrid. Small steps, but if enough people contribute with such initiatives, together we can change the world.

Jacqueline Stuart is a Director of S-Invest d.o.o.