Real Estate

Energy Management

消耗大量的房地产资产energy, primarily related to space heating, ventilating, air conditioning, water heating, lighting, and the use of equipment and appliances. The type of energy used, magnitude of consumption, and strategies for energy management are highly dependent on the real estate asset class, among other factors. Generally, grid electricity consumption is the predominant form of consumed energy, though on-site fuel combustion and renewable energy production also serve an important roles. Energy costs may be borne by companies in the industry and/or the property occupants; either way, energy management is a significant industry issue. To the extent that the real estate owner assumes direct responsibility for energy costs, such costs often represent significant operating costs, inherently indicating the importance of energy management. Energy pricing volatility and a general trend of electricity price increases, energy-related regulations, wide variations in energy performance across the existing building stock, and opportunities for efficiency improvements through economically attractive capital investments all further point to the importance of energy management. Energy costs assumed by occupants, either in whole or in part, are nonetheless likely to significantly impact companies in the industry, albeit through differing channels. Building energy performance is a notable driver of tenant demand, as it allows them to control operating costs, mitigate the environmental impacts of operations, and, often just as importantly, maintain a reputation for resource conservation. Additionally, real estate owners may be exposed to energy-related regulations even when energy costs are the responsibility of occupants. Overall, companies in the industry that effectively manage the energy performance of their assets may see reduced operating costs and regulatory risks, as well as increased tenant demand, rental rates, and occupancy rates—all of which drive revenue and asset value appreciation. Improving the energy performance of assets is highly dependent on property type and location, target tenant market, local building codes, physical and legal opportunities to deploy distributed renewable energy, ability to measure consumption, and performance of existing building stock, among other factors.

Water Management

建筑消耗大量的水their operations, through water fixtures, building equipment, appliances, and irrigation. Operating costs resulting from water consumption may represent significant costs depending on property type, tenant operations, geographical locations, and other factors. Companies in the industry can be responsible for a building’s water costs, or common area water costs, though it is common to allocate all, or a portion, of these costs to occupants. In these arrangements, water management continues to play an important role through tenant demand and regulatory exposure. Tenants may assess the water efficiency of real estate assets in an effort to control operating costs, mitigate environmental impacts of operations, and, often just as importantly, develop a reputation for resource conservation. Additionally, real estate owners may be exposed to water-related regulations even when water costs are the responsibility of occupants. Overall, companies in the industry that effectively manage water efficiency of assets, even when they don’t face direct exposure to water costs, may see reduced operating costs and regulatory exposure, as well as increased tenant demand, rental rates, and occupancy rates—all of which drive revenue and asset value appreciation. Long-term historic increases in the costs of water—and expectations of continued increases due to overconsumption and constrained supplies resulting from population growth and shifts, pollution, and climate change—indicate the heightened importance of water management. The ability to improve asset water efficiency is highly dependent on the property type, locational water availability, target tenant market, local building codes, the ability to measure consumption, and the level of current efficiency of existing building stock, among other factors.

Management of Tenant Sustainability Impacts

Real estate assets generate significant sustainability impacts, including resource consumption—namely energy and water—waste generation, and impacts on occupant health through indoor environmental quality. While companies in the industry own real estate assets, it is the tenant operations of such assets that is a dominant driver of sustainability impacts produced by the built environment. Tenants may design and construct leased spaces according to their operating needs. In turn, their operations consume significant amounts of energy and water, generate waste, and impact the health of those living, working, shopping, or visiting the properties. While these sustainability impacts are often generated by tenant operations and activities, real estate owners have an important role in influencing tenant sustainability impacts. The manner in which companies in the industry structure their agreements, contracts, and relationships with tenants is instrumental in effectively managing the sustainability impacts of their tenants, and ultimately, the impacts of their assets. Managing tenant sustainability impacts may include mitigating the problem of split incentives by aligning both parties’ financial interests with sustainability outcomes, establishing systematic measurement and communication of resource consumption data, creating shared performance goals, and mandating minimum sustainability performance or design requirements, among other strategies. Effective management of tenant sustainability impacts, particularly related to energy, water, and indoor environmental quality, may drive asset value appreciation, increase tenant demand and satisfaction, decrease direct operating costs, and/or decrease risks related to building codes and regulations.

Climate Change Adaptation

Climate change affects companies in the industry via frequent or high-impact extreme weather events and changing climate patterns. The manner in which a company’s business model is structured to incorporate ongoing assessments of climate change risks, and the adaptation to such risks, is likely to be increasingly connected to company value over the long term. More specifically, investment strategies with assets located on floodplains and in coastal regions that are exposed to inclement weather may have increased needs around risk mitigation and business model adaptation to climate change over the long term. These strategies are especially important in light of the long-term challenges associated with flood insurance rates, the financial stability of government-subsidized flood insurance programs, and financing stipulations or other creditor concerns. Besides insurance, other risk mitigation measures include improvements to physical asset resiliency and lease terms that transfer risk to tenants, although these measures can create their own costs and risks for real estate companies. To ensure long-term growth and protection of shareholder value, companies need to implement climate change adaptation strategies that are comprehensive, account for trade-offs between various risk mitigation strategies, and integrate consideration of all projected costs and benefits over the long term.