3 Reasons Why Sustainability Is the Future of Real Estate

Concerns on climate change and environmental protection have increased globally in recent years. The current pandemic has compounded the discussion with a hyper-focus on how the environment can affect people’s overall health and well-being. With all these happening simultaneously, consumers are now more invested in the need for sustainability, and most have jumped in on the bandwagon. Sustainability is becoming more common in the real estate sector as well.

The demand for Eco-friendly initiatives is also being observed in the real estate industry. Property damage brought about by super typhoons and hurricanes has further drilled down on the impact of climate change on this sector, with losses amounting to as much as $40 billion from just one disaster.

As incidents like this have increased in frequency, more and more key industry players realize that something needs to be done. This is why calls for Eco-friendly real estate practices are being placed in the spotlight, starting from the design up to the subsequent operations, including the construction or re-purposing of structures.

Investors are now looking at green property as a significant investment opportunity. In 2020 alone, almost $300 billion were invested in sustainable assets globally, twice as much compared to the previous year. A number of new sustainable construction practices are gaining traction as a result. This trend is expected to continue as more consumers and developers’ band together to support the cause. Here are the top three reasons why sustainability will shape the future of the real estate industry:

1. Growing Demand

Aside from the desire to help the environment, property buyers and commercial tenants have also realized the financial benefits of purchasing and living in a green home. In a survey of more than 8,000 home seekers, about 80% said that energy-saving home features that reduce heating and cooling costs are the most important factors when considering a purchase. This includes windows, doors, siding, solar panels, and landscaping that would help them conserve energy, reducing their bills as well as their carbon footprint. 

According to the American Solar Energy Society, an advocacy group that focuses on educating the real estate industry about the benefits of solar systems for their properties, the younger consumer segment will lead the demand for smart and sustainable properties in the next 5 to 10 years. This is why adding green features in listings of real estate for sale can make the properties more attractive to the younger market.

2. Benefits to the Developer

Having greener properties benefits not only the buyers but also the real estate developers and lessors. While the upfront cost during construction may still be considerably higher than traditional structures, it is not as expensive as it used to be.

Green properties are now more cost-efficient and provide better lifetime returns due to reduced material costs combined with the savings and added value that they provide to the residents and property managers. The US Environmental Protection Agency (EPA) shares that energy-efficient buildings cost 20% lower to maintain than conventional structures. They also increase the property’s value as clients are willing to pay extra when purchasing or renting green-certified properties.

Better waste management is another benefit that property managers when practicing sustainability. Properly managed green buildings have the capacity to save more than 80 million tons of waste from getting into landfills. In addition, instead of throwing everything away, many sustainable materials can be recycled and repurposed, thus providing savings both in the waste disposal and purchase of new materials.

Aside from these, energy-efficient materials like solar panels or wind turbines can also supply affordable energy. At the same time, foam insulation can help pull down heating and cooling costs by trapping in the air from heaters and air conditioners. This also allows more freedom for property owners as they would not be entirely dependent on utility companies for their energy requirements.

The benefits of Eco-friendly properties can be seen in the development stage as well. For example, green developers have access to a broader range of materials like waxes for walls and ceilings to better protect them against water damage or flame-resistant wool insulation that also provide better heat preservation.

3. Government Support

Around the world, initiatives to support green development in real estate have been proposed and supported by the government. This drive is led by the United Nations with its UN 2030 Agenda for Sustainable Development, which helps, among others, affordable and clean energy, as well as sustainable industries, cities, and communities.

Following this plan, several European countries also established measures to focus more on sustainable investments, such as exploring green bonds markets. The investment vehicle of the European Union, the European Long Term Investments Funds (ELTIFs), have directed funds into long-term sustainable assets like schools and nursing homes. The European Union also started requiring large corporations to share information on Eco-friendly and sustainable practices in their operations.

In the US, the Federal Reserve has recognized the impact of real estate in financial stability risks related to climate change. As a result, in December 2021, the US government has released a new Executive Order that pushes for reduced emissions through funding clean energy industries and building clean and Eco-friendly communities.