The energy transition is creating a growing convergence between infrastructure and real estate investing. While infrastructure investment focuses on expanding and decarbonising energy supply, improving the efficiency of existing buildings addresses the other side of the equation by reducing demand. As energy costs rise and power becomes increasingly constrained, reducing energy demand is creating a new source of value within real estate.
Key takeaways
- Occupier economics are changing: Rising energy costs, increasing power requirements and constrained grid capacity are making energy efficiency an increasingly important driver of asset competitiveness, leasing outcomes and rental growth.
- Making value creation measurable: Primary Energy Demand (PED) provides a measurable link between targeted energy-efficiency improvements, occupier cost savings and rental growth.
- A different approach to value-add: Targeted refurbishment of fundamentally strong assets can create value-add returns while avoiding many of the development, planning and vacancy risks traditionally associated with value-add investing.
Energy price volatility and the need for reliable power are reshaping logistics occupier demand. Buildings that can reduce operating costs, provide access to reliable power and support more electrified operations are becoming more attractive to occupiers. As a result, energy performance is becoming an increasingly important driver of leasing outcomes and rental growth.
The paper explores how Primary Energy Demand (PED) helps quantify occupier cost savings from targeted energy efficiency improvements. It also examines how the shortage of modern, energy efficient logistics space supports rental growth and how targeted refurbishment can move core quality assets onto a value add trajectory.
In today's more volatile market environment, with higher interest rates and less scope to rely on market driven capital growth or yield compression, strategies that can create income growth at the asset level through targeted improvements are becoming increasingly attractive.
