Green or bust: The future of real estate

Real estate investing used to be relatively simple - it was about price and yield. Now it’s on the front line in the race to net zero. We will never hit our carbon net zero targets by 2050 with today’s buildings. They must change, and we have to change our investment approach alongside them. Those assets that aren’t changed soon will risk becoming obsolete and losing value.


Originally published in August 2022
Written by Nina Flitman, Senior Writer, and Adrian Benedict, Head of Real Estate Solutions


Walk around any European city, town, village, or industrial estate and almost every building you pass needs some sort of renovation to support the transition to net zero. To put it in numbers, a report from the Buildings Performance Institute Europe1 (BPIE) in 2017 found that 97.5 per cent of buildings (around 215 million structures) in the EU must be upgraded to meet 2050 targets. Europe’s buildings are responsible for 40% of its energy consumption, more than any other sector, and they account for 36% of the E.U.’s energy-related greenhouse gas (GHG) emissions according to the European Commission2. This is (by any definition) unsustainable.

Some buildings will be knocked down and rebuilt to green standards as part of the natural development process. But as 85% of today’s stock will still be standing in 2050, according to the European Commission3, there is a need to retrofit at scale. Currently, very few buildings undergo this sort of adaptation to meet green standards – fewer than 1% every year in most major markets4 – meaning the pace of work must accelerate dramatically. This offers an opportunity for real estate investors to add a new type of value to assets while also supporting the transition to net zero.

Into the unknown

Not that this opportunity is easy: retrofitting at such a scale has never been tried before and it is daunting. Every aspect of buildings has to be considered to have any chance of meeting decarbonization targets. It starts with the obvious steps of updating the physical specifications by installing clean energy infrastructure and improving the building’s energy efficiency. But it extends to sourcing materials with the smallest embodied carbon profiles that support the transition to the circular economy, and educating occupiers and future owners to encourage the long-term sustainable use of buildings through green leases. Even choosing the right occupiers in the first place is important, given there is little point in creating sustainable buildings if they are used in an unsustainable way.

The changes needed are all-encompassing. To be sustainable, real estate assets should use and protect water resources wisely with rainwater harvesting; they should incorporate waste sorting and segregation facilities into the buildings themselves; and – beyond the physical building itself – owners and occupiers should review the supply chains of all materials and contractors.

These improvements have to be tracked and analyzed to ensure that their impact is real, and that change is happening at sufficient speed and scale to make a difference. All buildings will have to meet the highest green standards, targeting “Excellent” ratings from BREEAM, an alignment with E.U. Taxonomy regulation, and EPC A standardization. These various standards can add up to a bewildering alphabet spaghetti of acronyms, but taken together they create a common lens through which we can efficiently evaluate a property portfolio.

Getting ahead of the risks

Making buildings more sustainable is undoubtedly expensive, but a climate-driven renovation can add value to an asset. Retrofitting assets will future-proof portfolios against upcoming regulatory developments, while improving the infrastructure and meeting emissions targets will reduce the transition and physical risks such as flooding or overheating that could impact valuations.

Buildings after a retrofit also have a far stronger rental profile than their brown counterparts, and even as the pandemic ravaged the market over the last two years, the demand for green buildings has remained strong. They are also still in short supply (BPIE’s report in 2017 showed that less than 3% of the E.U.’s building stock qualified for an “A” Energy Performance Certificate), meaning demand should be sustained for the next decade and beyond. We expect to see a strong early-mover advantage for the industry players who grasp the importance of the transformational process and the value it can create.

An ambitious outlook

Embracing this industry-wide change will mean that investors begin to think beyond the usual risk/return model of financing to incorporate decarbonization goals into their portfolios, seeking investments that will produce both financial performance and a contribution towards a net zero world. To paraphrase a report from the Thinking Ahead Institute5, people want both decent returns and a world worth spending those returns in. This is complex, challenging portfolio operators to meet two objective goals at once, but it is undeniably the future of investing if we are to make a positive contribution to the net zero goal.

Transforming Europe’s real estate portfolio is no easy task. The scale and the potential impact on the financial landscape is huge, and there is no framework for us to follow as we make this leap. But given the potential climate impacts from continuing to emit carbon from buildings, the biggest risk to investors, to the industry and communities is to do nothing at all.



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1 “97% of buildings in the EU need to be upgraded,” BPIE (Buildings Performance Institute Europe). 

2 “In focus: Energy efficiency in buildings, “European Commission (

3 “Renovation and decarbonisation of buildings,

4 “Buildings – Sustainable Recovery – Analysis,” IEA

5 IFT_paper.  6 “Climate-beliefs,”