Redefining tenant-investor relationships on the journey to net zero

2 min read 28 Feb 22

At grassroots level, collaboration between buildings’ owners and buildings’ users will be what it takes to achieve net zero objectives. How could tenant-investor relationships be redefined along the way and what potential hurdles and opportunities could this present? 

When modern real estate is synonymous with service and sustainability, the interaction between landlords and tenants is today far more than a negotiation of rent. Rising occupier expectations are driving an increasingly hands-on approach by asset owners, enabled by technology, in order to enhance customer experience and improve buildings’ performance. Increasing demand for ‘green’ buildings will define the next chapter in this evolution, with deeper engagement required as the industry transitions to net zero carbon. 

“Gathering data on buildings’ energy use is the starting point on the premise that what you can measure, you can manage.”  

Data gathering is the starting point

Reducing buildings’ greenhouse gas emissions requires team work between investors and corporates since up to 80% of a building’s total carbon footprint can come from occupier activities. Conversely, only a small proportion of total emissions are typically within asset owners’ direct control. Analysis of our own global real estate portfolio found this to be just 13%.

Gathering data on buildings’ energy use is the starting point for this work, on the premise that what you can measure, you can manage. This information is valuable in helping asset owners to establish an accurate view on current energy performance and identify potential opportunities for mutually beneficial net zero improvement initiatives, such as solar photovoltaic systems, which can potentially reduce occupiers’ overheads and enhance buildings’ ability to attract and retain tenants. 

Forging strong relationships is pivotal

In practice, accessing data can be challenging as details concerning utilities have historically been treated as commercially sensitive by corporates. Forging strong relationships with occupiers to cast light on energy performance trends and promote cooperation is therefore pivotal to realising operational energy efficiency.

Proactive engagement with long-lease tenants, as recognised in our 2021 GRESB results, is particularly important given limited scope to carry out improvements during buildings’ occupancy. Our progress in this area has been supported by large corporate occupiers’ increasing commitment to net zero targets of their own. This alignment sets the scene for increased data sharing and collaboration.  

Embracing technology marks the direction of travel

As the scope for data collection expands, investors are turning to technology to help automate the process and drive engagement. Smart meters and digital tenant platforms hosting occupier-facing technology, already in use within M&G’s European portfolios, can provide information on a building’s use and equip tenants with web-based tools to review and optimise energy performance. These technologies are likely to become more widely adopted as an interface between tenants and landlords, as collaboration grows.     

Engagement targets could intensify momentum

With a new shared objective, investors are increasingly working in partnership with occupiers, building on their role as service providers. As corporates get on board, engagement continues to rise though there remains a need for wider collaboration in the industry.

Engagement targets in addition to energy intensity and financial targets could help to intensify momentum, while visibility of the benefits that alignment can offer may create a snowball effect as buildings’ performance is enhanced.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.

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