In the ever-evolving landscape of business and investment, sustainability has emerged as a pivotal determinant of success, particularly within the commercial real estate sector.
As we navigate a world fraught with economic and environmental uncertainties, it becomes increasingly evident that sustainability principles are not just a flash in the pan trend, but a strategic imperative for businesses looking to secure their assets and ensure long-term profitability.
Last week, an audience of 500 delegates had the privilege of hearing from visionary environmentalist, Sir Tim Smit, executive vice-chair and co-founder of the Eden Project, speaking at CBRE NI’s ‘Sustainable Horizons’ event at Belfast ICC.
A true titan of sustainability, Sir Tim challenged us all to look at the bigger picture and change our reactionary mindset on the subject of sustainability.
He is right: the problems that lie ahead regarding climate and our environment are immense, but if we can alter how we think about potential solutions, the opportunities are limitless.
As regulatory bodies implement new EPCs into legislation it has profound implications for the sector. In April 2023, the minimum EPC rating for commercial buildings in England and Wales was raised to ‘E’, for any commercial building being sold, leased or rented. It is predicated that the next change in EPC legislation due in 2025 will require a minimum EPC rating of ‘C’. By 2030, the government intends to increase the minimum rating to ‘B’.
Recent research by CBRE NI indicates that, based on these legislative changes coming into force, up to 75% of Belfast’s office stock could be obsolete by 2030.
While such legislation has not yet been mandated for this jurisdiction, the changes are expected to reach these shores in the not-too-distant future.
Therefore, it is crucial that landlords, tenants, and business owners take stock now to future-proof and avoid pitfalls in the coming years. The dilemma facing many landlords is how they balance the need to make substantial investment to bring properties up to speed with EPC requirements by either repurposing, reimagining and/or repositioning older office stock with a solution that is economically viable.
While the upfront costs of integrating sustainability appear prohibitive in the shorter term, research shows that these investments will yield long-term benefits. Sustainable buildings often command higher rental rates and experience lower vacancy rates, translating into increased revenue streams.
CBRE’s 2023 Sustainability Index confirmed that energy-efficient assets provided a better return last year at -1.4% compared to -4.6% for inefficient offices.
Sustainability has more recently become a key driver for employers seeking to attract staff back to the office post-pandemic and bolster their ESG credentials. We have already seen this in Belfast with buildings like City Quays, The Ewart and Olympic House, all developed to the highest sustainability credentials, proving very attractive to potential tenants.
Furthermore, sustainable buildings are more attractive to institutional investors who are increasingly prioritising ESG-aligned assets in their portfolios.
Implementing sustainability can seem a daunting task. But consulting with trusted partners and advisers will enable organisations to take proactive steps as they embark on their journey to more sustainable practices.
By identifying a baseline as a starting point to understand the carbon footprint of the assets, clients can be guided through a staged process to determine clear ESG objectives, integrate sustainability into decision-making, engage with stakeholders to align values, and continuously monitor and adapt strategies to meet evolving sustainability standards and market demands.
Incorporating sustainability in our built environment is not only our duty as global citizens but also a fundamental component of a sound business strategy. It creates a means to protect assets, attract investors, enhance tenant satisfaction, and achieve long-term success in an ever-changing market.
Sir Tim encapsulated the boundless possibilities of sustainability perfectly for his Belfast audience last week, saying:
“By embracing change and acting fast on sustainability, Northern Ireland will put itself at the forefront of a new green energy enlightenment. Cities and towns in Northern Ireland could become beacons of best practice, encouraging innovators and investors to these shores and instilling confidence in all who live here.”
The changing landscape shaped by ESG presents unprecedented challenges for Northern Ireland’s commercial property sector in 2024.
But instead of always looking for the negatives, we should perhaps take a leaf from Sir Tim’s book and try to envision the immense possibilities available to us here on our doorstep.
:: Brian Lavery is managing director at CBRE Northern Ireland
