In the latest episode of Real Catch Up, the BNP Paribas Real Estate podcast that observes, analyses and dives into the real estate sector and the city of tomorrow, we discuss investment. Although the health crisis of recent years initially threw the real estate sector off kilter, it was able to adapt and bounce back. The situation helped to develop new, so-called alternative assets, while also confirming the central role of ESG (Environment, Social and Governance) criteria.
Larry Young, Senior Director, Central London Investment at BNP Paribas Real Estate UK, talks us through how these changes are shaping the world of real estate investment.
ESG becomes a prerequisite
Pandemics, international geopolitical tensions, an ageing population, urban sprawl or the scarcity of raw materials are all factors that affect the ways of seeing, thinking but also acting, particularly in the world of real estate investment.
According to Larry Young, the major change that has occurred recently is based on the ever-growing presence of environmental factors and sustainable development in real estate investments. Indeed, due to the widespread awareness of the need to limit not only our greenhouse gas emissions, but also our energy consumption, "investors have been inclined to turn to sustainable development, building green while adopting ESG criteria", explains Larry Young. Before adding, “In connection with these fundamental changes, investors are working more and more with the users and occupants of their buildings in order to anticipate these issues. These trends are at the heart of real estate investment strategies”.
This is clearly reflected in the increasing use of renewable, bio- and geo-sourced materials such as wood, in the construction buildings. Energy consumption is also of growing importance within the real estate sector, achieved through the use of renewable energies, better thermal insulation or even more ingenious building designs. “This allows us to obtain excellent ratings on our buildings, such as the BREEAM label and many others. We are also carrying out more and more mixed-use projects which correspond to occupiers demands,” says Larry Young
Alternative assets: the investments of tomorrow?
Another cornerstone of real estate investments is increasingly based on alternative assets. “Investors have turned to certain asset classes that have emerged as winners from the pandemic. For example, there are what we call Bed & Sheds, so everything related to the residential market and logistics, which are working well. But there are many new asset classes – health care, life sciences for example – that have become more important due to Covid-19, but also due to the increased consideration of ESG criteria”, Larry Young analysis.
Finally, two major factors will have an impact on real estate investments in the years to come. First of all, major transportation infrastructure projects will greatly facilitate urban mobility, increase land prices and promote the establishment of buildings or their renovations, and therefore subsequent investments. For example, thanks to the Grand Paris project, the METAL 57 office building, the BNP Paribas Real Estate demonstrator located in Boulogne-Billancourt, “will benefit from one of the main new stations built nearby. This new line will also make it possible to go to La Défense or Charles de Gaulle airport from Boulogne-Billancourt,” reports Larry Young. Secondly, banks will also have to closely monitor these issues and changes. While financial institutions are still timid about alternative assets, they remain “essential for the investment market”, underlines Larry Young.