Reducing carbon emissions in real estate was one of the focus areas at the recent Cop26 summit. However, it is not just about being on the right side of the climate crisis.
“Real estate is one of the largest issuers in the world,” said Anil Ramjee, Reits global analyst at Sesfikile Capital. ‘Focusing on reducing those emissions is important to all stakeholders: landlords, tenants and investors.
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“It’s a big focus in Europe and it’s starting to become one more focus in the rest of the world, especially in the United States. In countries where governments have pushed it, it has become a focal point. And for us, it is becoming an important factor to consider. ‘
This is because it could significantly affect the performance of a company.
“We are looking at the impact of ESG on the fundamentals of the companies we invest in,” said Naeem Tilly, Sesfikile’s portfolio manager and head of research. “For example, we look at office buildings that emit too much carbon. Businesses that reduce those emissions through the use of technology will attract tenants and perform better in the long run. Those who ignore it will lose out as their buildings become obsolete. Therefore, we move away from the companies that do not implement these strategies towards the ones that are doing it. ‘
“For us, that’s renewable energy,” Tilly said. ‘Real estate accounts for around 40% of global greenhouse gas emissions. Only the energy sector is a major emitter. A lot of that comes from homes, but it shows the importance of what homeowners need to do.
“We are finding a lot of retrofitting on older stocks in South Africa. The initial goal is to reduce electricity use, but a lot of energy expenditure has improved a lot from a profit point of view. ”
Redefine, for example, seeks returns of 19% from solar energy installations on its properties.
“This shows that in many cases these conversions are cumulative,” Tilly said. “It’s not just the right thing to do.”
Water use is another area where reductions make financial sense. Hyprop, for example, is investigating the installation of vacuum toilets similar to those used on airplanes in some of its shopping centers.
“They are talking about reducing water use to pay back that investment in two years,” Tilly said.
In addition to reducing costs, greener buildings are also more attractive to tenants. Owners who do not invest in this area therefore risk losing rentals.
“The evidence is that green buildings in office space, on average, have fewer vacancies and higher rents on the market,” Tilly said. So the demand from the tenants is there. And if the demand finally exists only for this type of property, others will become obsolete. ”
To do this, it is important to appreciate the factors that matter most in the real estate environment.
Patrick Cairns is a South African editor at Citywire, providing knowledge and information for professional investors around the world.
This article first appeared on Citywire South Africa hereand republished with permission.