Is ESG having a detrimental effect on the development pipeline?

It’s becoming clear that developers are facing more and more barriers to getting new schemes off the ground. With our ambitious UK target to be net zero carbon by 2050, it understandably will have a knock-on effect on the types of buildings, supply chain and construction methods when it comes to creating new homes. How does this stack up during feasibility?

What are the implications of refurbishment vs refurbishing vs new build when it comes to looking at ESG credentials?

These are questions the industry needs to consider. It’s an area that our Savills research paper explores in more detail:

Environmentally and socially sustainable properties will become increasingly in demand from occupiers and investors. What do these trends mean for development viability?

The topic of ESG in the built environment was rapidly heating up prior to the Covid crisis. Comfortingly, the crisis has not led to it being put on the back-burner. Indeed, it could be argued that the elements of the ESG agenda that are focused on wellness have been given a dramatic boost over the last 12 months.

However, while some parts of the real estate sector – most notably those who were delivering new build – were already getting to grips with the costs, specifications and risks that are connected with delivering greener spaces, the question of what to do with the 98% of the built environment that is not new is yet to be answered.

This debate is also complicated by rising construction costs on all types of property due to supply-side constraints, some Brexit-related and some not. These, combined with the higher costs of delivering greener or even carbon-neutral buildings, will put significant pressure on developer and house-builder margins in the future and may even reduce the supply of new ESG compliant properties.

Sustainable Building Mock Up

It’s not clear how the property sector should tackle the climate emergency

There is little doubt that the property sector in the UK understands the challenge that we all face from the climate emergency. What is less clear is how the industry should deliver buildings that alleviate the problem. Many themes appear to contradict each other. For example, is it better to build new to a high environmental standard or refurbish so as to minimise waste and reflect whole life carbon?

Even more prosaically there is the question of who pays. While there is significant evidence that at the moment the costs of building greener are higher, the evidence that tenants are prepared to pay more rent for green commercial premises or that homebuyers are prepared to pay a premium for a greener home is harder to come by.

Refurbishing, refinancing, developing, buying or selling – Legal & Contingency is here to support you and your projects:

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