New sources of energy
Housing markets in major European cities are under pressure: one of the most urgent challenges is the implementation of the EU climate protection targets. Investments in energy-positive residential towers are seen as a promising solution. By Steve Hays
The EU’s ambitious target of a carbon-neutral building and construction sector, pledged as part of the Paris Climate Agreement, is piling pressure on the industry to deliver a new generation of nearly net zero-energy consuming buildings by 2050. Against this background, the demand for residential accommodation in Europe’s major cities is stronger than ever, with millions of young professionals and students desperately seeking affordable housing, as urban property prices relative to average earnings spiral to new heights and rents in the most popular destinations tack relentlessly upwards.
The good news is that there is an emerging confluence of interests between the construction industry, young people who wish to live in a sustainable way and the interests of institutional real estate investors. Pension funds, insurers and private wealth managers are increasingly seeking property investments that can enhance the ‘future-proofing’ and ESG credentials of their portfolios, while conforming to the new EU rules and safeguarding investment returns. The regulations, announced in 2019, require asset managers and institutional investors to disclose the environmental and social risks in their investments as of 2021.
“By adjusting building regulations to make energy-positive construction happen, governments can enlist the help of pension funds and insurers in financing this energy generation revolution, and so also meet their sustainable investing goals, The latest building technology offers the potential for huge reductions in future CO2 output. We should turn towards building energy-positive beacons of sustainability and away from traditional energy-draining development,” says Xavier Jongen, Managing Director at Berlin-based Catella Residential Investment Management (CRIM).
The housing supply shortfall is being fuelled by strong demographics trends, such as urbanisation and migratory flows to the main cities and the growth in single-person households. These social megatrends are presenting a significant challenge to urban planners, particularly when the flipside of this is the hollowing out of populations in more peripheral economic regions.
Catella’s research team estimates the scale of the residential shortfall at a massive 970,000 units annually across all major European markets, or roughly the equivalent of constructing a city the size of London every four years.
Stricter lifecycle rules demand big changes
To date, sustainable housing construction in Europe has focussed on resource efficiency and emissions produced by the home. However, project developers will now have to adopt a full lifecycle view, encompassing extraction, material manufacture and demolition. Using this broader definition, Europe’s buildings consume as much as half of all EU energy use, half of all raw material extraction, one third of all water use and 40% of all greenhouse gas emissions, according to the European Commission. Buildings are therefore a major part of the EU Circular Economy Action Plan, which envisions a net-zero emissions economy by 2050.
Taking the whole lifecycle approach necessary to reach the 2050 targets will require the delivery and measurement of a broad set of performance criteria covering a building’s entire lifecycle, with individual household metering and the adoption of a host of new technologies.
Partnering for greener solutions
To scale up residential construction, while adhering to increasingly stringent environmental regulations, means players in the industry with complementary expertise are forging partnerships to drive forward the green agenda. CRIM, for example, is partnering with French building engineering company Elithis, which is a world leader in the design and development of energy-positive buildings.
The two companies are cooperating to build 100 energy-positive residential towers across Europe by 2030 in a €2 billion investment programme. The world’s first energy-positive residential tower – the Elithis Danube Tower in Strasbourg – was completed in 2018. The Elithis towers, which generate more energy than tenants consume, will offer apartments at affordable rents and supply surplus power back to national grids. By combining forces, the two partners say they can offer a European residential investment proposition that is unprecedented in both its scale and ambition for sustainability and social responsibility.
“It would have been difficult a few years ago,” Dr. Thomas Beyerle, Head of Research at Catella said. “Each residential property market had different characteristics, so institutional investors were wary of ‘Resi’.” But increasingly, he added, developers are applying similar building specifications, making it possible to compare national and regional markets across Europe. Making the developments energy-positive will also enable them to offer affordable rents and ensure high occupancy.
50 residential towers planned in large city centres
CRIM and Elithis will start developing their first three residential towers in Dijon, St Etienne and Montevrain in France in 2020. The launch of three additional schemes in the French market are planned for later next year and 36 more sites have been identified for development, with a total of 50 projects planned in major urban centres throughout the country. The first projects outside France will be launched in 2021 as part of a strategy to develop a further 50 energy-positive residential towers across Europe over the next decade.
Every new Elithis tower built will seek to embed ‘continuous improvement’ practices into the development process to ensure it is better than the previous one. The towers will also be designed to allow easy conversion to functions other than residential use, if necessary. And despite all the sustainable features, the construction costs are no higher than for a regular residential tower.
Technology employed in the buildings includes photovoltaic panels and a bioclimatic design that aims to protect the environment and natural resources, making them energy positive from the outset. Each tower will reward individual sustainability efforts through smart artificial intelligence applications.
Occupants will be able to lower or eliminate their energy bills, allowing an average French family to save around €1,600 per year. They will also benefit from lower operating costs by adopting the least expensive technological choices in terms of maintenance. Elithis research estimates that 4.8 million tonnes of future annual CO2 emissions could be avoided, or about 10% of the annual carbon footprint of London, if the average 1.5 million new apartments that are constructed in the EU each year were built on ‘energy-positive’ principles.
CO2 emissions would fall significantly if all new residential developments were to become energy-positive.
Sustainable housing development projects
“Our research only included the 15 countries in Europe that produce the largest volumes of new housing annually but, even then, carbon emissions would fall significantly if all new residential developments were to become energy-positive."
Imagine if this technology was incorporated in every single new building in Europe the results would multiply exponentially, as would the benefits for our planet in terms of reduced emissions,” Elithis CEO, Thierry Bievre, said. As for the investments’ performance prospects, these greener housing developments are being launched at a time when the continuing strong housing market and exceptionally low interest rates, resulting from the European Central Bank’s quantitative easing programme, have driven yields on European residential properties to 40-year lows – with Catella’s data showing the average prime European residential yield falling from 6.25 percent in 2013 to 3.72 percent in 2019. “Accelerating urbanisation flows and the increasing unaffordability of buying properties in large urban centres are providing the demand sponge, soaking up the supply of rental housing from private and institutional investors alike,” Catella’s Beyerle concluded.
By Steve Hays