Typically, when people think of things that cause environmental pollution, they don’t immediately think of real estate. We don’t often see black smoke issuing from homes, office blocks, or retail centers. The times we associate environmental degradation with buildings are often in relation to harmful emissions from factories. Even then, it’s not necessarily the buildings themselves causing the pollution, but the activities performed within them.
This is why most people are shocked to learn that real estate is one of the biggest contributors to climate change, as stated by the team at Upkeep Media, and the numbers that back up that claim are astounding. Currently, the global real estate industry consumes over 40% of the world’s energy, accounts for 40% of greenhouses, and uses up 40% of raw materials.
These are the results of various processes in the manufacture and operation of buildings. For instance, cement, the chief ingredient in concrete, is the third-largest source of industrial pollution worldwide. Additionally, air conditioning systems are a major contributor to ozone depletion due to the release of chlorofluorocarbons and hydrofluorocarbon, or CFCs and HFCs, respectfully.
Sustainable real estate investing is about changing all that. Its goal is to reduce the harmful impact of the modern world on the natural environment. The question sustainable real estate investing seeks to answer is, “How do we meet the growing demand for modern buildings without destroying the very resources that make buildings possible in the first place?”
Why is sustainable real estate investing important?
Environmental pollution poses a risk to your assets
Properties located in areas where city or state governments intentionally address environmental pollution issues caused by buildings are at a huge risk. Such facilities will have higher operating costs due to the government’s stringent penalties imposed on the owners. The cost of maintaining such buildings will constitute a significant drain on investors’ profits.
In April of 2020, New York and Los Angeles each passed legislation requiring commercial buildings to be net carbon zero by 2030 for new buildings and 2050 for old buildings. Since real estate investors can’t just pick up their buildings and move them to other locations, they must comply to avoid hefty fines. It means adopting new building materials and techniques.
Being unsustainable will make your building unattractive
An environmentally unsustainable building will hit real estate investors where it hurts most: their ability to attract quality tenants. Buildings that are not “future-proof” in terms of going green will lag in their ability to compete for customers because tenants will increasingly make the eco-friendliness of a building one of their prime requirements for renting.
Currently, several major corporations have revised their lease requirements to meet sustainability requirements (known as green leases). Listed companies and IT companies – the major tenants of many real estate investors – are at the forefront of this change. Many more businesses are taking similar steps to be environmentally responsible.
Being unsustainable can cost real estate investors in both the long term and short term. Investors who are quick on the uptake will pull ahead of their competition. These firms will position themselves to take advantage of government incentives (such as tax cuts for green buildings), attract more customers, and qualify for easier financing terms for new projects.
Building sustainability and investor’s profits
But is it possible to be sustainable and profitable at the same time? Most real estate investors have no issues with being sustainable if it does not interfere with profits. The challenge is when sustainability affects the capital and construction cost for new buildings or inflates the cost of operation. Is it possible to be sustainable and profitable?
There is no doubt that investors may incur higher costs in the short term when trying to make their buildings green. But over a long period, environmentally sustainable buildings become more profitable than their eco-unfriendly counterparts. This truth will increase in the coming years as climate investing becomes the attractive new frontier for venture capitalists and lenders.
Here are a few examples of why sustainable properties will be more profitable in the future than the current model most investors use.
- The interest rate on mortgages for new construction is currently 0.5% lower for green buildings than for dirty buildings. This margin is expected to become wider in the coming years. Venture capitalists and other investors are lining up funds to finance the development of new building materials that will further lower the cost of sustainable buildings.
- By installing solar panels on the roof of their buildings, real estate investors realize they can generate enough power for the building and create new sources of income for the business. Also, by optimizing their buildings’ air conditioning systems, some investors realize a massive 25% drop in their energy consumption.
Even if it does not look like that today, sustainability will eventually be about profit and survival for real estate investors. Investors who act today position themselves to gain a lot in the future.
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