Sustainability—conversion instead of new construction?

Turning old into new—or: why make it complicated when it could also be simple

There is a consensus that climate protection is a matter for all of us. This is particularly true for the real estate industry: according to “The Global Risks Report 2020” by the World Economic Forum, it is responsible for

39 % of energy-related CO₂ emissions,

30 % of energy consumption,

55 % of worldwide electricity consumption, and

50 % of the consumption of natural resources (through construction).

© shutterstock / Fahroni
In order to be in tune with the ecological environment, the real estate industry no longer thinks only about the selection of materials, but also about the resource-saving reuse of buildings.

A new approach to climate neutrality is needed

In other words, it makes a decisive contribution to the success or failure of all efforts to achieve climate neutrality. However, at present, just one percent of all buildings worldwide are considered “climate neutral”. Hence, the goal of climate neutrality cannot be achieved by “merely” building in a climate-neutral manner—there is no way around decarbonizing existing real estate. In existing buildings, this often fails due to a lack of attributable data—the available technology does not allow the collection of individual consumption and waste volumes in apartment buildings or large office buildings with several tenants. Consequently, the “demolish and rebuild” strategy often appears to be more cost-effective at first glance; after all, new construction allows the building technology to be aligned with the requirements of a CO₂ impact measurement. But this apparent advantage turns into the opposite when considering not only the building's energy consumption during its life, but also the so-called “gray energy" consumed in the course of construction. The EU taxonomy takes this into account, so that new buildings become relatively more expensive. Since proper demolition and disposal are also becoming increasingly complex and therefore more expensive, reconstruction or transformation is gaining in importance. Fund provider Union Investment and real estate research company bulwiengesa have conducted a joint market study to examine how the transformation property segment is developing.

The transformation’s potentials

It predicts that EU regulations are likely to make transformation increasingly attractive and more important in project development, with demolition and new construction falling behind. Ralf-Peter Koschny, Board Member of bulwiengesa, summarizes: “Real estate transformation is a complex process requiring a high level of experience and professional expertise. Successful transformation has the best chance when urban environment and stakeholders are intensively involved.” The study is based on the RIWIS database, for which bulwiengesa has been analyzing more than 200,000 lease data annually since 1986, including more than 100,000 individual properties in 125 cities and 1,000 other locations. Surprisingly for those who no longer believe that stationary retail has a future, the analysis revealed that industrial properties and offices are being transformed more frequently than retail properties. One reason for this may be that large-volume retail properties in suburban areas are more difficult to revitalize and repurpose than office properties. Approximately half of the projects studied were transformed into mixed use—retail and hospitality, office and housing—and such a variety of uses contributes to the attractiveness of cities.

New structures and utilization concepts?

Although 56 % of all transformed space is in A cities, the issue is also gaining momentum in B, C and D cities. Hotels rank second in transformed space in all four categories, accounting for 16 % of A cities. Targeted properties also include logistics and industrial space, so transformation really does affect all market segments. When it succeeds, it can boost the attractiveness of cities that have been struggling in the pandemic: “Until recently, our city centers were often dominated by retail and offices, vibrant during the day and deserted at night, but this urban development and real estate guiding principle has come under increasing pressure in recent years. Both the real estate industry and municipalities are called upon to develop strategies and establish structures and utilization concepts that will be able to respond flexibly to market changes in the future. Respectfully transforming real estate that is no longer in line with the market can make an important contribution in this respect,” hopes Henrike Waldburg, Head of Investment Management Global at Union Investment.

Stephanie von Keudell

Independent journalist