How an increased focus on sustainability is shaping the real estate sector

How an increased focus on sustainability is shaping the real estate

ESG (Environmental, Social, and Governance) has become a significant factor in the real estate sector, with stakeholders and investors increasingly prioritising sustainable practices. Governments are implementing energy efficiency standards, but many real estate leaders are unsure about their reporting obligations. Investors as well as tenants also contribute to the demand for sustainable buildings. Energy-efficient properties are expected to have higher occupancy rates and lower vacancy rates, while low-quality, inefficient buildings will require significant investment. Real estate also plays a vital social role, positively impacting local communities and attracting shoppers, thereby boosting the local economy.

‘’It is the high quality, energy-efficient buildings that will be the ones that will be fully occupied going forward. And the low-quality energy inefficient buildings will be the ones that will be difficult to let, have high vacancy rates, and will require quite a significant investment.’’

Ralph Mitchison, HLB Global Real Estate Leader

Inflation (81%), rising interest rates (80%) and resource cost (78%) make-up the top three greatest risks to business by real estate leaders, according to HLB’s Survey of Business Leaders 2023. Economic and geopolitical factors have led to rising building costs and stagnation in the investment market. Supply chain issues and uncertainty stemming from the short but recent banking crisis further hinder investment. However, there are discussions among architects, investors, and regulators about establishing a model for energy-efficient buildings that meet ESG requirements. But while the investment market may be stagnant, there is an increase in ESG investing on the equity side, particularly in PropTech and infrastructure with carbon reduction attributes. European Union regulations drive sustainable practices, but challenges remain in measuring and comparing sustainability practices.

‘’There's a lot of prop tech being developed that is able to collect and measure data and report about sustainable practices to not only focus on your own sustainable practices, but also of your suppliers too, to develop that whole supply chain that is sustainable.’’

Paul Ashburn, Co-Managing Partner, HLB Thailand

Technology innovations is playing a crucial role in making real estate more sustainable. Smart building technology, including sensors and IoT devices, helps monitor and reduce energy consumption, while sustainable materials and construction practices minimise environmental impact. Virtual and augmented reality aid in visualising designs and improving sustainability. PropTech also promotes the adoption of renewable energy sources like solar panels and energy storage systems. These innovations are driving the real estate industry towards a more sustainable future.

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About the HLB and Multilaw partnership

Multilaw, a global network of law firms, has been a strategic partner of HLB for over a decade. As we’re both seeking the best opportunities for our members and clients, the purpose of our collaboration is to help real estate businesses navigate complexity and develop sustainable strategies that deliver long-term value.

We collaborated to release this co-authored report on how sustainability and ESG practices are shaping the real estate sector. As the demand for greater accountability and action on ESG issues grows, the real estate industry is experiencing a global shift towards more sustainable practices. The report highlights the challenges faced by the sector, including varying views on ESG across regions, a stagnating investment climate, and shifts in customer demand. However, it also explores emerging technologies and innovative solutions that can help drive sustainable practices while delivering strong financial returns. The report is the result of a discussion among a global community of real estate specialists from HLB and Multilaw, showcasing their thought leadership in the industry.

If you would like to discuss any of the topics raised in this report, we welcome the opportunity to do so.

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