Real estate development is a key factor in the fight against climate change. Sustainable real estate development trends and the concept of sustainability for 2023 are evolving in tandem with the commitment of G20 members and other countries to achieve the United Nations Sustainable Development Goals (SDGs) by 2030.
The role of real estate development in sustainability is widely recognized, given its significant environmental impact. The transition is crucial, given the negative environmental impact of traditional construction. The current trend in the sector is to achieve sufficient technological advancements to lead to the institutionalization of best practices globally.
Real estate is directly and indirectly related to the concept of sustainability and the 2030 SDGs.
In other words, although sustainability has a global scope, it requires that actions be scaled to local environments, which means that the role of real estate in sustainable development, that is, in providing an urban opportunity, is crucial.
Sustainability has gone from being a niche in the construction industry to being an approach increasingly adopted by companies in the design, construction, operation and even demolition phases of real estate projects.
The environmental, social, and economic benefits of sustainable real estate are no longer up for debate. Recent studies suggest that the industry is gradually adopting a more favorable view of green and sustainable buildings due to the decreasing cost of technologies, growing demand, and increased incentives for sustainable development.
A 2014 report published by Deloitte on commercial real estate, which builds on the seminal article Doing Well by Doing Good, notes that implementing sustainable practices in existing buildings can result in higher internal rates of return than using practices.
The report further states that sustainable investment results in more than just cost savings and, for commercial properties, leads to an increase in asset value. However, some of the challenges reported for adopting sustainability principles in buildings include higher upfront costs, lack of political support, affordability, lack of market demand, and a shortage of trained professionals.
It is widely accepted that the current sustainable real estate market is essentially demand-driven, meaning that the adoption of green building activities is primarily driven by commercial factors and that higher construction values and lower operating costs are the main influencers on investment decisions.
However, it is important to note that the increased internal commitment to sustainability in many companies is also due to the growing recognition of the value of brand-building opportunities. This aligns with the technical and structured approach to sustainable construction that is generally adopted.
Environmental certification and assessment tools are widely used to make sustainability goals and principles more accessible to the industry, and a large number of such tools are available. The report anticipates that the industry will shift from "green" real estate to a broader perspective of "sustainable" real estate and buildings.
Therefore, while it can be argued that existing tools play an important role in improving the sustainability of many projects by guiding design, increasing environmental awareness, and structuring environmental information, many academics are calling for a deeper understanding.
It was previously argued that the sustainable construction sector is primarily driven by the market and demand. Tenants, especially in the commercial real estate sector, are increasingly aware of the positive financial, health, and productivity benefits of green buildings.
This can help maintain and increase demand for sustainable urban planning, community development, and the construction and operation of green buildings. Investors, for their part, play a vital role in advancing green and sustainable real estate.
Although research suggests a growing rate of sustainable and green building activities in companies worldwide, a large proportion of companies and investors are still unsure about the financial and environmental outcomes of their green investments.
If significant progress is to be made in sustainable real estate, investors must commit to green and sustainable building practices, integrate sustainability at all levels of their decision-making, and target sustainable investments. Given that defensive investment strategies remain the most prevalent in the market, governments face the important responsibility of establishing benchmarks and minimum sustainability requirements for developers and property owners. Furthermore, a large proportion of companies report that the law requires them to work toward sustainability in all their activities and to report on this.
Governments, from a policy and regulatory perspective, must institutionalize green and sustainable building codes, including the development of regulatory frameworks for the review, reporting, and benchmarking of projects.
To generate broader interest in green building activities, governments must work with other institutions to align incentives with the needs of the regional market and investors.
Achieving sustainability in the real estate sector is complex. Investors, governments, landlords, and tenants readily indicate that the deterrents to green building practices are related to the complexity of the issue.
Examples include the multitude of environmental assessment systems, the large differences in regional regulations, and the interconnectedness of sustainability at many levels of the decision-making process.
