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July 8, 2021

Net Zero and Asset Valuation with Carbon Intelligence

“We are at a tipping point…we are building out of necessity rather than aspiration to hit net zero targets” – David Partridge, Chairman, Argent Related

Speaking at the Carbon Intelligence-chaired IPSX webinar, industry heavyweights offer their views on how the drive to net zero will affect future valuations in the Real Estate sector

Chairing the panel discussion, Sivan Pliskov, Associate Director of Carbon Intelligence, welcomed David Partridge, Chairman of Argent Related, Chris Strathon, Director of Valuation Advisory at JLL, Rob Bould, Non-Executive Director at IPSX and Oliver Light, Commercial Director at Carbon Intelligence.

Setting the scene for the discussion and framing the debate, the panel were presented with the very real possibility of stranded assets, falling valuations, demand for sustainability metrics, lack of property data, asset valuation risk and property timescales. The panel considered whether the ‘carrot’ of a bright future where investment in pushing to net zero is repaid through asset premiums, higher rents as well as demands by tenants for greener buildings or whether the ‘stick’ of increased government-led legislation on new carbon reduction targets for real estate owners will lead to the changes needed.  The panel was split but all were agreed that transparency of data was key to hitting the demands of achieving net zero in the Real Estate sector.

Oliver Light highlighted that “70-80% of buildings that will be standing in 2050 are already built and that retro-fitting will become a major issue.” He further offered that “the acquisition process for buildings will be significantly impacted but that cheaper debt and green loans could offset retro-fit costs.” But the issue of transparency was evident with frameworks emerging that can accurately “see when and where stranded debt will occur.”

Chris Strathon approached the debate from the lens of the valuation profession and highlighted ‘green premiums’ and the “shortage of green properties but the accelerated obsolescence of buildings that don’t comply.”

Having successfully built one of the stand-out developments in London at Kings Cross, David Partridge, Chairman of Argent Related, showcased the company’s determination from the outset to develop the site “20% better than building regulations”. “We started building Kings Cross back in 2008/2009 hoping the world would catch up and now tenants like Facebook certainly have caught up. Now we are building out of necessity rather than aspiration as we were then.”

Continuing this theme, Rob Bould echoed the acceleration in demand for reporting at a single asset level and sees IPSX’s commitment to net zero and the environment as a major positive: “In providing transparency via IPSX as a public exchange, we are mirroring the shift that is happening. Transparency is not only key it is vital to the property sector. It’s a good thing that transparency is coming to the property market.”

Looking at the key drivers of change, the panel sees no “magic bullet” as David Partridge opined. The combination of tenants demanding new criteria for their buildings, occupiers (be they shopping, learning, working, playing etc) wanting to know the carbon effect of the building they are using or investors wanting full transparency makes it clear that the direction of travel is set and the pace increasing.

David Partridge made a compelling argument that banks are the key drivers of change: “Ultimately the banks have a big role to play in all of this and they are becoming more demanding, driven by the Bank of England who are asking all businesses to project forward their climate resilience. Responsibly backed loans are paramount as ultimately the bank is the one that will be left holding the asset if businesses can’t meet climate obligations.”

Complementing this was Oliver Light who offered an interesting insight into commercial engagement trends with Carbon Intelligence: “We are working with more and more blue-chip companies to define their requirements for real estate – be that to occupy or invest in.  The parameters and frameworks of old are being challenged and we are helping these companies to really understand what they need to see before progressing.” And he concluded: “Transparency of data can lead to cheaper debt, green loans and an enhanced valuation. IPSX can play a really important part in the market going forward.”

Sivan Pliskov concluded the webinar by wrapping up the key take-aways and observations that societal and behavioural change were present but needed to accelerate to achieve the net zero targets and perhaps encapsulated the necessity expertly when she said: “Twenty-nine years is a very short period of time in property.”

The full webinar can be viewed below.