Commercial property specialists CBRE Ireland today released an interesting piece of thought leadership looking at the topical issue of sustainability as it specifically relates to multifamily/Build-to-Rent schemes. The report acknowledges that health and wellbeing along with environmental considerations have been moving up the priority list for developers, investors, funders, occupiers, Governments, and other stakeholders, all of whom are increasingly focussed on environmental impact, energy efficiency and decarbonisation. This is an issue that the property consultants say has escalated since the onset of Covid. While the focus to date has been primarily on commercial properties, CBRE believe that this is now starting to change and that an increasing cohort of developers and investors are now turning their attention to the residential sector and more particularly to multifamily developments.
This issue has particular resonance for countries such as Ireland where multifamily development is at such an embryonic stage. The property consultants believe that with lots of new purpose-built rental stock being developed, there is an opportunity to embrace ESG from the outset of the development process and in doing so future-proof these buildings and set Ireland apart as an exemplar in sustainable multifamily development.
According to Rachael McGinley, Head of Sustainability at CBRE Ireland “Much of the multifamily stock that is being developed in Ireland is purpose-built and therefore adheres to current regulatory requirements such as Near Zero Energy Buildings (NZEB) and Building Energy Rating (BER) certifications so is already well on its way to demonstrating favourable sustainability characteristics. However, the focus is now moving away from regulation and design elements and focusing on other construction, operational aspects and social elements that also have a part to play in improving overall ESG credentials within a development. ESG in itself is very broad and no scheme can aspire to tick every box, not least because of the cost of providing every aspirational element, which is ideological and would invariably render development unviable. However, those developing multifamily schemes are increasingly looking at all of the options that come under the E, S and G banner and determining which elements they can realistically incorporate into schemes to make them more sustainable and efficient to operate.”
According to CBRE, in locations where supply and demand are in broad equilibrium, sustainable multifamily developments should generate higher rents and demonstrate higher occupancy than competing schemes that don’t have equivalent ESG credentials. They say that developers should be mindful of this and look to incorporate sustainable features into their developments to improve liquidity and future-proof their multifamily developments. Interestingly, the property consultants conclude that while the millennial generation, who generally make up the bulk of occupants within multifamily schemes, are very aware of the need to live sustainably and are likely to demand these features in their rental accommodation, occupants are unlikely to be willing, or indeed in a position to, pay more for sustainability credentials or features.CBRE say that in markets where rent affordability is already an issue, renters are not going to want to, or indeed be in a position to, pay extra for sustainable features despite expecting them to be in place. While all renters will opt for the most sustainable option if offered the choice, they will be less inclined to pay extra for the privilege of living in a sustainable scheme unless perhaps it can be demonstrated that significant cost savings can be generated from reduced utility bills as a direct result.
Incorporating ESG elements will increasingly have value implications for property assets according to CBRE. According to Marie Hunt, Head of Research at CBRE Ireland “Just as we are seeing in the commercial property sector, we expect to see a widening delta between core multifamily buildings that offer the highest standards in terms of ESG and older secondary buildings that will require considerable retrofitting in order to bring them up to minimum standards. It is no longer a case of considering if you can afford to integrate sustainability elements into a multifamily scheme but rather a question of considering if you can afford not to”.
The property consultants point out that incorporating ESG can add significant costs to a project.. Multifamily developers therefore need to be mindful of developing sustainably but also sensibly so as not to impact negatively on viability and deliverability of the overall scheme – an issue that is particularly pertinent in markets in Ireland where supply is constrained and viability compromised already, particularly in regional cities. The CBRE report points to lots of actions that developers and those owning and managing multifamily schemes can consider from an Environmental, Social and Governance (ESG) perspective and state that while it will not be possible to incorporate all elements into every scheme, developers need to be mindful and incorporate as many as is feasible, and have a positive impact on the development. When considering what approach to take in respect of incorporating ESG within a multifamily residential development, CBRE say that a strategic approach should be taken to balance benefits for residents, community and investors, with the capital cost of incorporating sustainable design elements or retrofitting older stock.