As an investor in commercial real estate, it’s important to be aware of the growing importance of sustainability and how it can affect your investments. Sustainability is the ability of a business to meet its current needs without compromising the ability of future generations to meet their own needs. Environmental factors include a company’s impact on climate change and water resources.
As sustainability becomes more important to investors, it will also become more important to the commercial real estate industry. Buildings that are not energy-efficient or don’t consider sustainable practices will become less desirable to tenants. Additionally, lenders may require borrowers to disclose their ESG performance as part of loan underwriting. And finally, buildings that receive high ESG ratings may command higher rents and sale prices than those that don’t.
The impact of climate change on commercial real estate
As climate change continues to cause global temperatures to rise and extreme weather conditions to become more common, we see the devastating effects of water scarcity in communities worldwide. In the US Southwest, for example, the Colorado River — a critical water source for Utah, Colorado, Wyoming, New Mexico, Arizona, Nevada, and California — is reaching a crisis tipping point with frighteningly low water levels. According to a study published in Nature Climate Change earlier this year, the US Southwest’s “mega drought” is the worst it’s been in 1,200 years.
The ongoing mega drought in the southwestern US significantly impacts the region’s commercial real estate and businesses. This mega drought is a stark reminder of the importance of water conservation and the need for communities to come together to address water scarcity.
According to the EPA, the commercial real estate sector is the second largest consumer of water in the United States, accounting for 17 per cent of withdrawals from public water supplies. With such a large footprint, the industry has a lot of potentials to take action on water conservation. Below are three ways the commercial real estate sector can make an impact.
1. Make new buildings more water efficient
Making new buildings more water efficient can be done using various water-saving fixtures and appliances and proper landscape design. For example, installing low-flow toilets, faucets, and showerheads can save a significant amount of water each year. In terms of landscape design, using native plants that require less watering can also make a big difference.
2. Improve water efficiency in existing buildings
Improving water efficiency in existing buildings often requires retrofitting with new fixtures and appliances and landscaping changes. However, many simple changes can be made that can have a big impact, such as fixing leaks and training employees on best practices for conserving water.
3. Educate tenants and occupants on water conservation
Educating tenants and occupants on water conservation is important because they use the fixtures and appliances daily. Providing tips on conserving water can help change behaviour and have a lasting impact. Additionally, involving occupants in larger projects such as retrofits can help ensure success.
Sustainability is going to be important as we head into 2023
Water conservation is an important issue for the commercial real estate sector to take action on. Many things can be done to reduce consumption, such as making new buildings more efficient, improving efficiency in existing buildings, and educating tenants and occupants on best practices for conserving water. By taking action on this issue, the commercial real estate sector can help reduce its environmental footprint while also saving money on utility costs.
Sustainability is an important consideration for any investor in commercial real estate. Buildings that don’t consider sustainable practices may become less desirable to tenants and face difficulties securing financing. However, buildings that receive high ESG ratings may be able to command higher rents and sale prices. For these reasons, investors need to be aware of the concept of sustainability and how it can affect their investments.
Black Collie Capital for Real Estate Funding and Capital Solutions
We offer a variety of services, including but not limited to:
- Debt & Equity Placement
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