Enhancing long-term value
The complete lifecycle
Sustainability requires long-term planning. In terms of policies, this means ensuring the interests of future generations are taken into account. Any real estate company that is committed to sustainability will therefore always consider the entire lifecycle of a building.
This strategic approach applies as soon as the developer and planners begin work on a project. At a later stage, maintaining the long-term value of the building becomes a key focus of investing in its upkeep. Operating costs are also viewed differently when sustainability is the guiding principle, since some investments designed to reduce running costs only pay for themselves after a number of years.
Sustainable management and high turnover are not mutually exclusive
In portfolio management, by contrast, the emphasis is typically on short to medium term returns. Real estate holdings are often sold after five, ten or at most 15 years. For investors, this makes economic sense in terms of their yield expectations.
The trend towards sustainable management that covers the entire lifecycle of a building is not necessarily at odds with this reality. On the contrary, sustainability measures make financial sense for asset managers even when buildings change hands frequently.
There is growing awareness of this within the industry. According to a study conducted by consultancy Roland Berger (in German) in 2010, 70 per cent of developers and investors were willing to incur higher investment costs for sustainable buildings. The findings also showed a growing willingness among customers to pay more, with tenants prepared to pay an extra 4.5 per cent on average for a sustainable property.
Major players lead the way
Large fund providers such as Union Investment Real Estate can act as trailblazers for the industry by adopting a sustainable approach. They are most likely to be in a position to undertake the significant investment required while still protecting their investors’ financial interests. In fact, investing in energy-saving measures can lead to a significant increase in the occupancy ratio and market value of a building even in the short term.
Larger market players also mostly benefit from having the necessary expertise and resources to assess long-term decisions accurately. Union Investment has an in-house real estate project management team that brings together architects, engineers and other experts. Best-in-class external service providers, such as property and facility managers, also play an important role in maintaining building quality, with high standards underpinned by corresponding clauses in the contracts. Effective tools for efficient communication and control are an additional requirement.
Comprehensive, detailed building documentation is likewise particularly important for sustainable management. It can be valuable both with regard to future certification and when selling the building.
Value preservation, not demolition
The overall aim from the perspective of the real estate sector is to keep properties marketable for longer. But the advantages of a sustainable approach extend beyond increasing the value of a property and therefore of the portfolio as a whole. Long-term use and consistently high quality also yield social and ecological benefits.