Green Real Estate: How far are we really in the transition?

Green Real Estate: How far are we really in the transition?

A thread on the state of (green) real estate right now and how it may look in the future.

Felix Michels

Jul 22, 2022

·

15

min read

Today we want to talk to you about green real estate and you might wonder why. Well, we all have to live somewhere and even if it's not always obvious, the real estate sector is a major contributor to climate change. 

Therefore, we would like to take a closer look at this sector. From the current status to opportunities and problems.

So let’s dive right into it and start with Germany as an example.

In Germany alone, there is a housing shortage and affordability crisis that led the Government to introduce a plan to build 400.000 new dwellings a year. At the same time,  due to the high demand for living space, especially in urban areas and major cities, landlords are renting apartments at ever higher rates and in poor condition. Probably everyone that was on a flat hunt in Berlin can relate. 

But it's not all about supply and demand of course. There are different factors influencing the sustainability of the real estate sector. But let’s have a look at the numbers first. What does the real estate sector really impact? And how can we go from real estate to green real estate?

Speed read:

  1. The real estate sector is responsible for around 39% of global GHG emissions, however, the largest portion of that comes from the operation of buildings (70%) and only 30% from the construction and production of materials.
  2. Rebuilding everything is impossible, therefore, existing buildings have to be retrofitted to be more energy efficient. Retrofitting a building can decrease energy consumption by up to 45%. This does not only save energy in the short-term but also money in the long run. However, budgets at the moment don’t include retrofits.
  3. The construction has to be more sustainable as well. Steel and cement production are emissions-intensive and the materials used are not sustainable. Greener and partially better alternatives for these materials exist, however, have not scaled up yet. Those alternatives such as timbercrete and ferrock can reduce waste and also improve buildings due to larger flexibility, stability and insulation values. 

Today looks like there’s no tomorrow: The absence of green real estate

On a global scale, the real estate sector is at the centre of climate change, being responsible for around 39% (!) of all greenhouse gas (GHG) emissions. Meaning it is driving almost half of all emissions globally. This number, however, consists of two different sides of real estate. On the one hand, emissions are caused by the construction of the buildings, on the other, caused by people living in (think electricity, heating, etc.) and maintaining those buildings.    

Of these 39% of global emissions, 30% are caused by the production of raw materials and their use in the construction of buildings. Overall, this equates to 11% of all GHG emissions coming from the production of building materials and construction. Of ALL the emissions there are, worldwide, and this is only the construction!
The largest portion of these emissions is from primary building materials such as steel and cement. 

The remaining 70% of emissions result from the daily operation of buildings and depend on a number of factors including the size of the building, (water) heating, electricity use (for lights, computers, fridges, washing machines, dishwashers, AC etc.) and general heating of the building. You get the idea. Basically everything we actually need to live in our apartments 😉.

Food for thought: particulate matter

Not enough numbers yet? Well, here’s another one for you: the construction of buildings itself contributes 14% of the total particulate matter in big cities. Particulate Matter (PM): Is also called particle pollution and describes the mixture of solid particles and liquid droplets in the air. In more simple terms: particulate matter describes the dirt in the air we breathe. Some of this dirt is rather large and can even be seen with the eye, some of it is very small and seems invisible to us humans. Sadly, just because we can’t see it doesn’t mean it’s not there 😅. Regarding the particulate matter, the real estate sector is responsible for: this is mostly caused by the construction of buildings. (You might have noticed a lot of dust at and around construction sites before).

Source: McKinsey

In addition to the direct emissions caused by the real estate sector, we must consider the waste produced by it, where the numbers are even more drastic.

In both Germany and the UK, the waste resulting from construction & building added up to over 50% of their total waste. In the UK this number is even higher with 61% accounting for construction while Germany is slightly lower, having 55% of the waste produced by the building industry. As an absolute amount, this is around 29 million tonnes of waste by the construction industry yearly solely in Germany. Just to give you a bit more context: an average car weighs around 2 tonnes. This means that the waste produced by construction in Germany is as much as stacking more than 14 million cars on top of each other. This lovely car tower would then be 21,450 km high, it gives a whole new meaning to space junk! Nice, right?

If we look at the US, the numbers there are much higher than their European counterparts. (How is that even possible?!) In 2018 alone, US American construction waste resulted in 545 million metric tonnes of waste, nearly 20-times more than in Germany despite only 4-times the population of Germany.

Furthermore, water consumption can’t be neglected. For each cubic metre of concrete used in buildings around 200 litres of water are consumed.

A pinch of Hope: How we can make the real estate sector green(er)

So what can we do to make the real estate sector more climate-friendly and these numbers a little less intimidating?

On the positive side, essentially all technologies to mitigate the climate impact of buildings already exist. As described before, 70% of the emissions caused by the real estate industry are through the usage of buildings i.e. us living in them. This means that reducing emissions there has the biggest impact. Also, the average lifetime of a building is 30-130 years, meaning we cannot wait to replace all buildings but have to retrofit them. 

Regarding retrofitting, it is all about energy efficiency. This can mean different things such as the implementation of, for example, new lighting and heating systems internally. And of course the good old insulation externally. If deep retrofits are implemented, the energy consumption of buildings can be cut by 45% and even through low-cost retrofits by 15%. This does not only save energy and emissions but also money for the inhabitants (especially when looking at electricity and gas prices consumers are currently facing 😰)!

Sounds great, right? 

However, one problem persists: somebody has to pay for the retrofitting and not just a bit. To retrofit all required NYC buildings a whopping US $24 billion would be needed. 

This would include upgrades of heating, cooling, insulation and technologies or supply. Therefore, it is extremely important to allocate budgets efficiently and invest in the most urgent areas. Going even further, to support the net-zero transition by 2050, $9 trillion would have to be spent worldwide yearly to make our buildings future-proof. 

The problem with this is that the decarbonisation of the real estate sector, especially the upgrading of existing buildings is not included in budgets. This means neither landlords, governments nor real estate giants want to or can make the short-term commitments, although long-term savings are almost guaranteed. The only solution: Ask Elon Musk. 

No, we’re obviously kidding. 

Bearing the cost of these retrofittings should be a shared effort. Only when consumers, governments and companies work together - in an efficient way -  we can be fast enough in transforming the real estate sector to be green(er).

Also, retrofitting existing buildings does not only decrease their energy use and running costs but also makes them more attractive for tenants, as these buildings are future-proof. Because of that, a retrofitted building increases its value immediately, and as this becomes more and more a standard, non-retrofitted buildings will also lose value. This can also have massive consequences for big owners, as the bigger the portfolio, the bigger the consequences. 

Share of commercial real estate experts planning to take different sustainability actions to address their environmental impact in Europe in 2022

Source: Statista

In the construction itself, innovation is not as fast as in terms of retrofitting. Materials used are still majorly the traditional ones: so steel, cement and concrete. Unfortunately,  these create lots of emissions and require raw materials that are beginning to become scarce goods. 

However, innovation for construction materials is picking up. We’ve selected a few for you to dig a bit deeper into the potential they have.

Due to the demand for a replacement of concrete, as the production of cement produces large amounts of CO2, ferrock was invented. Ferrock is made out of wasted steel dust that would normally be discarded from the production process and silica from ground-up glass. This makes ferrock consisting of 95% recycled materials and also 5-times (!) stronger than concrete, so it's not only more sustainable, but also increases the stability of the building. 

The second replacement is timbercrete, another replacement product for concrete. It is a sustainable material that has several advantages over concrete. It is 2-times lighter and has a higher insulation value than concrete, is more flexible (it can be screwed & nailed) and it can store carbon emissions as well (yes, really!). Seems like a real sustainability hero 🦸🏻‍♂️.

The third example is plastic. According to studies from Bath University, a new method has been found to replace sand in concrete with recycled plastic leading to a more sustainable concrete material. It not only frees up oceans from plastic but also decreases demand for the scarce good of sand. A win-win right? 

Of course, implementing all of this is not as easy as it sounds. It requires time, structural change, capital and companies that implement those new technologies. 

But, enough about companies. Let’s talk about you.

How can you become part of the new, green real estate sector??

To accelerate the transition to the above-mentioned methods, Cooler Future has just launched a new fund on our platform. The newly offered fund consists of companies that own, develop, renovate, manage and service real estate. So you can be part of all the good stuff, without actually having to do it. How can you not love that? 😅

Our new fund invests in the property sector companies that benefit from the development of global real estate trends but is actively engaged in addressing climate change and other environmental challenges. This means that the companies in the fund are not only participating in the real estate sector but driving the transition of the before-mentioned factors. They improve energy efficiency, insulation and reduce waste, and therefore benefit from investments in climate-friendly alternatives. 

Let’s take a brief look at one of the companies in the fund: Equinix. Equinix specialises in data centres and making those buildings more energy efficient. Their aim is to reduce scope 1 & 2 emissions by a whopping 50% by 2030 from 2019.

Food for thought:

Data centres have a huge energy consumption since we do so much online, therefore they are often located in geographically good regions that benefit from cooling. There are even data centres located in caves to have the best natural cooling and avoid wasting lots of energy.

As a Cooler Future investor, you can now invest from €20 in the green real estate transition, helping to accelerate this trend and profiting from its growth and implementation, because in the future only green real estate companies with sustainable portfolios will be able to succeed. 

Conclusion

The real estate sector is one of the main drivers of emissions and waste worldwide. If we continue to build the way we are right now and do not upgrade existing buildings our need for energy and the emissions of the sector will continue to rise. 

Through technologies already available today, we can make a change by retrofitting existing buildings and including new, more sustainable materials in the process. Through this, we can not only reduce emissions of usage of buildings by up to 45% but also reduce waste and even include recycled materials in the construction process that also benefit building quality.

There are companies out there focusing on exactly that, reducing emissions of existing buildings and improving the ways we build new ones. Via the green real estate fund offered on Cooler Future, you can easily invest in those companies that are striving to change the industry, and improve all of our well-being. 

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