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Renew not replace

The greenest building is the one that already exists, which is why the future is retrofit says Alice Murray, Head of Asset Management and Sustainability, Clearbell Capital

The question of the moment centres around how the real estate sector prioritises its approach to embodied carbon and whole life cycle carbon and what processes we put in place to better assess whether assets with underwhelming sustainability credentials are best served by being demolished and rebuilt, or retrofitted to improve performance.

Both approaches can result in the development of fantastic, design led and highly sustainable spaces, but I’ve always strongly believed that the greenest building is the one that already exists and that we’re often far too quick to go down the route of tear-down and rebuild. Upgrading older stock in most instances makes practical sense, makes business sense, and, most importantly, is the right thing to do to address the sector’s carbon footprint. However, it is important to acknowledge that there are also times when buildings are obsolete and should not be retained.


Retrofit is also an unavoidable necessity. Most stock that will stand in 2050 already exists today (UBS, Dec 2023), and concerningly, much of it is on track to fall well short of compliance with incoming MEES regulation changes in 2027. Indeed, over half of non-domestic real estate in London alone currently risks non-compliance (BNP Paribas, 2023). Tearing down all non-compliant stock and rebuilding is neither a practical, or cost effective option, which is why retrofit rates will have to quadruple in order to meet 2030 targets, according to Knight Frank analysis (Knight Frank, 2023 & UBS, Dec 2023).

New buildings, evidently, cannot solve the sector’s carbon issues alone, and so failure to upgrade what we have will damage the overall sustainability performance of the commercial property space.

We also mustn’t fail to acknowledge the reality of the current landscape. Planning authorities are increasingly coming down on the side of retrofit and are becoming more hesitant to approve the demolition of old commercial buildings. They understand that retrofit is inherently more sustainable and that repurposing the existing substructure, superstructure and façade of a building can be more cost effective.

Though many fund managers will be put off by the high capital expenditures involved, what must be considered is the large discounts investors can demand on older, less energy efficient stock. Ultimately, we’re also seeing more and more evidence of the ‘green premium’ for assets that perform at the top end of the scale when it comes to sustainability. In London, that can be as much as a 19 per cent boost to sale prices (UBS 2023).

While capital expenditure on retrofitting projects can be significant, less efficient ‘brown’ stock trades at a discount. This can off-set much of the cost and make for an attractive yield play when compared to the outlays required for new builds. There are also other returns to be considered such as rental premiums, reduced voids, longer lease lengths and a higher chance of retaining tenants at future lease events.

For prospective tenants, the levels of embodied carbon in a building is likely to become ever more relevant with future carbon taxation and disclosure models for businesses looking set to give more weight to embodied carbon levels. This will increase the appeal of retrofitted assets. With that, we’re expecting to see businesses being prepared to pay a rental premium for buildings that use less embodied carbon.

About Sarah OBeirne

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