As for what they will spend it on, the top three stated capex priorities globally are energy efficiency, electrification and securing renewable power generation. Waste and water optimisation is also particularly important in Asia, while newer businesses are much more likely to prioritise carbon offsets and portfolio optimisation.
In line with these priorities, real estate companies – particularly in Europe and the UK – see electrification of on-site operations (such as switching gas boilers to heat pumps) and installation of EV charging as the most impactful activities to reduce carbon emissions.
However, only around one-quarter of respondent firms globally have undertaken those two activities, potentially indicating the high cost and difficulty of doing so. The most widely undertaken activity has been to reduce carbon emissions through staff incentives and initiatives perhaps because they are relatively quick, easy and low-cost to implement.
Property developers and investors have different priorities in certain areas, including switching to renewable energy (29% of developers saw this as a spending priority versus 20% of investors) and installation of EV charging (26% versus 16%).
Drivers and opportunities
Ultimately, rising overall investment in transition activities suggests net zero activity will ramp up across the board in the coming years. After all, real estate companies feel net zero offers commercial benefits, with transparency of supply chains and cost savings seen as the biggest business opportunities from the transition.
“These findings underscore the importance of an in-depth understanding of the entire value chain for any real estate company looking to improve energy efficiency and save on costs. It is encouraging to see that businesses in the sector see this as a core part of the commercial case for decarbonisation,” says Stephens.
What’s more, the net zero transition is affecting their approaches to tenders and mergers & acquisitions.
Seven in 10 believe their net zero strategy receives significant weight in customer contracts; and for one in five say it is a mandatory or determining factor. Around two-thirds (68%) of businesses say ESG credentials have a significant impact on their M&A activity, with the figure higher among big companies. In Europe, they are a mandatory or determining factor for a third (34%) – the highest of any region.
“We are witnessing an increasing focus on all things ESG by clients looking at in-region or cross-border M&A in the real estate sector,” says Razvi. “Especially when it comes to environmental considerations, but also taking into account social/governance considerations for markets where it makes sense to do so.”
Finance as an enabler
Real estate businesses have good reasons to be increasing their focus and spend on reaching net zero, but they recognise they will heavily rely on the availability of financing and technology to get there.
Financing also appears – alongside policy and government legislation – at the top of the list of factors cited by respondents as having the greatest influence on net zero strategies.
"The property sector will have to spend a huge amount of capital on decarbonisation over the coming decades, and access to capital will be critical," says James Richards, Head of Commercial Real Estate, HSBC US. "Capital providers and financial institutions are in a position to set the direction and influence the speed of the transition."