Climate change and the growing ESG agenda will place new demands on commercial real estate, but will also create new sources of future occupational demand.
“Without immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to 1.5 °C will be beyond reach”. (1)
These were the stark words from the latest report authored by the UN Intergovernmental Panel on Climate Change (IPCC) which also maintained that human activity is “unequivocally” to blame for global warming. This report underscores the need for urgent and radical action to tackle the planet’s crisis as well as the inevitability of further extreme weather events.
In light of this, corporates are going to need to shift gears and make seismic changes. Making the necessary changes will require unprecedented levels of innovation, new technologies, new skills, cross-sector collaboration along with greater partnership between finance, business, government and citizens in an attempt to meet the challenge head-on. This will place new demands on real estate.
Disruption = Demand (Version 2).
A few years ago, we published a paper entitled Disruption = Demand. The paper focused on the demand coming from digital disruption and the so-called 4th industrial revolution. Climate change is the next industrial revolution, set to unleash a wave of disruption-led business transformation and this will have a similar effect on occupational demand. Underscoring this is Accenture research that found that 88% of European companies plan to raise investment in sustainability as well as digital transformation. (2)
Examples of companies transforming with ESG front and centre include Microsoft, who have committed to be carbon negative by 2030 and to remove from the environment, by 2050, all the carbon the company has emitted since its formation. It has also established a $1bn climate innovation fund. Elsewhere PwC launched a new global strategy, The New Equation, with an increased focus on climate change action and ESG. The firm plans to invest $12bn in its strategy over the next 5 years, creating 100,000 new jobs, with focal investments including the expansion of Centres of Excellence for specialists on key ESG topics and the launch of a global ESG Academy to empower its partners and staff with the skills and knowledge to be able to integrate the fundamentals of ESG into their work. Finally Pinsent Masons is implementing a purpose-led strategy “to make business work better for people”. Many others are following suit. A total of 70 FTSE 100 companies have made a net-zero pledge, a rise of more than 50% compared to June 2020. (3)
New sources of demand
New sectors and economies are rapidly emerging to tackle today’s pressing social and environmental challenges. This has the potential to create millions of jobs. According to the International Labour Organisation a shift to a greener economy could create some 24 million new jobs globally by 2030 if the right policies are put in place.(4) Below are some examples of the burgeoning growth sectors and economic models to watch out for:
Sectors
Electric vehicles: Vehicles that are either partially or fully powered on electric power.
According to UBS by 2030, 40% of all new cars sold globally will be electric, and by 2040 virtually every new car sold globally will be electric.(5)
Want to know more about this sector and the implications for real estate? Read our latest report.
Renewable energy: Consolidates a grouping of natural energy technologies. This includes wind, solar, marine, biomass and hydro.
Renewable electricity generation in 2021 is set to expand by more than 8% to reach 8,300 TWh, the fastest year-on-year growth since the 1970s. Solar PV and wind are set to contribute two-thirds of renewables growth. (6)
Green Finance: Defined by the WEF as any structured financial activity that’s been created to ensure a better environmental outcome.
Globally the green bond market could be worth $2.36tn by 2023. (7)
ClimateTech: Umbrella term that includes tech solutions aimed at decarbonising the planet.
According to analysis from PwC venture funding for climate related technology is growing five times faster than the rest of the venture capital market. (8)
Economic Models
The collaborative economy: Collaborative economies consist of giving, swapping, borrowing, trading, renting, and sharing products and services for a fee.
The collaborative or sharing economy will be worth $335bn by 2025.(9)
The circular economy: Defined as an approach based on designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. It is a move away from the take, make, waste industrial model. According to the WEF widespread uptake of the system could bring economic benefits valued as much as $4.5tn by 2030. (10)
In 2020, Renault established RE:Factory, a dedicated circular economy factory for vehicles and mobility.
Doughnut economics: A term first coined by Kate Raworth in 2012, this economic model is focused on balance and a move away from endless GDP growth. Being able to thrive economically and meet the needs of the population while living within the means of the living planet. The model comprises of two concentric rings, a social foundation and an ecological ceiling, shaped like a doughnut.
Amsterdam was the first city to formally implement doughnut economics. Actions taken in the city so far include targeting a 50% reduction in food waste by 2030 and establishing easily-accessible second hand shops and repair services over the next three years. (11)
So, what for real estate?
A new emergent and rich source of demand for commercial real estate is on its way. The sector should consider the following if it wants to capture this opportunity:
• With much of the focus on innovation, this demand will gravitate towards innovation ecosystems in locations where the appropriate knowledge and talent resides.
• Developers should consider embedding new sustainable economic models, like the circular economy into schemes.
• Occupiers will want to locate in buildings that reflect and help them achieve bold ESG ambitions. Buildings with superior ESG credentials and a strong sense of purpose and community will naturally see heightened levels of demand.
• Other occupier requirements could include: experience-led space to showcase new innovations, maker space, training and education space and greater flexibility to accommodate changing business models.
1. IPCC report – Consensus from 234 scientists from 66 countries who compiled the report for the world’s governments. https://www.ipcc.ch/report/ar6/wg1/
2. Accenture survey of 700 C-suite executives at European companies March – April 2021 https://www.ft.com/partnercontent/accenture/a-european-industrial-renaissance-can-create-millions-of-new-jobs.html
3. An audit by i of FTSE100 companies. https://inews.co.uk/news/cop26-huge-spike-in-uk-businesses-making-net-zero-pledges-but-many-targets-fail-quality-control-1118729
4. International Labour Organisation 2019 https://www.un.org/sustainabledevelopment/blog/2019/04/green-economy-could-create-24-million-new-jobs/
5. UBS Global Research 2021 https://www.ubs.com/global/en/collections/sustainable-investing/latest/2021/trends-electric-transport.html
6. IEA Global Energy Review 2021 https://www.iea.org/reports/global-energy-review-2021/renewables
7. NN Investment Partners (NN IP) https://www.nnip.com/en-CZ/professional/insights/articles/global-green-bond-market-set-to-hit-eur-2-trillion-in-three-years-says-nn-ip
8. Analysis from PwC September 2020 https://www.pwc.com/gx/en/news-room/press-releases/2020/climate-tech-investment-report-climate-week.html
9. Statista https://www.statista.com/statistics/830986/value-of-the-global-sharing-economy/
10. World Economic Forum – The Circular Economy Challengehttps://www.weforum.org/projects/circular-economy#:~:text=The%20circular%20economy%2C%20which%20promotes,in%20economic%20benefits%20to%202030.
11. Article from the Guardian, April 2020 https://www.theguardian.com/world/2020/apr/08/amsterdam-doughnut-model-mend-post-coronavirus-economy
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