By Creating A Strategy Centered On Sustainability, Investors Will Build Strong Funding Relationships
Real estate has always been seen as a good hedge against inflation due to the possibility of increased rents. However, rising interest rates, calls for greater building sustainability and the growing need to convert properties to alternative uses are impacting property values.
Aldermore Bank Commercial Director John Carter said that for property owners and investors to continue to enjoy healthy returns, a long-term plan is essential. And this plan needs to prioritise sustainability as a key concern.
Bisnow spoke to Carter about what is impacting the funding landscape and the funding options available to support the transition to more sustainable living.
Bisnow: How are property values being impacted by the need to improve properties' sustainable credentials?
Carter: In asset classes with strong demand, rental growth can offset any capital value movement of yields due to the economy. But if a property has poor environmental and social governance credentials, the chance of rental income increasing is much less.
Alongside other factors like planning use, location, access to amenities and condition of property, the need for a long-term sustainability plan is high on occupiers’ list of demands. This means with the risk of the value of an asset falling significantly if they don’t improve the property, asset owners can no longer ignore the need for investment or repurposing.
The positive for investors and owners is that as rent reviews begin to take hold in a higher-inflation-rate environment, properties that display these characteristics are more likely to see better rental growth.
Bisnow: How aware is the industry of the need to invest in sustainability?
Carter: While property owners and investors are generally aware of the upcoming impact of legislation, including changes to energy performance certificates, not all customers we speak to have a solid plan.
We recommend to all the investors and owners we speak with to develop a sustainability strategy that has achievable short-, medium- and long-term objectives. There are tools on the market that can help make sustainable improvements to properties easier, and the technology is evolving all the time. To help utilise these tools, investors should seek advice from property professionals before implementing any solutions.
Bisnow: Have you seen many examples of investors and property owners implementing effective long-term strategies?
Carter: We work with owners and investors to help them explore options that can help them “go green”. This can include modern methods of construction or even strategies to make sustainable lifestyle changes. With our develop-to-hold offering, we support investors in planning new developments to ensure that sustainability is front of mind from the outset and executed throughout.
We also work with customers who have seized an opportunity to refurbish or redevelop existing properties to support their strategies to achieve rental growth and generate greater returns from their assets. An example is our recent commercial loan in excess of £10M for Landteam Property Investments to complete ESG-focused refurbishments to help secure a long-term government lease in the centre of Darlington.
We’re learning by backing customers like this and seeing their strategies. The whole real estate sector can learn from borrowers who identify these opportunities, as well as those who create a successful strategy to improve a building’s sustainability and future-proof their revenue streams.
Bisnow: When it comes to future-proofing, what is Aldermore doing to encourage younger generations to use real estate more sustainably?
Carter: While we’re acting now, we’re also looking to the future and help educate the next generation to think sustainability first. We recently sponsored a project at the University of Hull called the Green Room Project.
The social experiment follows how a group of students live sustainably while taking part in community projects that benefit the environment. The aim is to raise awareness of differing attitudes to sustainable living, featuring those reluctant to change their lifestyles as well as those keen to reduce their carbon footprint.
The project highlights diversity of thought about sustainability and shows how people have a different understanding of electricity usage of certain appliances, for example, which highlights how the sustainability of a building is impacted by people’s opinions. We’re fortunate to work with a lot of borrowers who are interested in investing in these types of awareness-raising projects.
This article was produced in collaboration between Aldermore Bank and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
