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Comment: Sizing up sustainability

Real estate’s role in corporations’ approach to improving sustainability and showing sensitivity to the environment has never been clearer. A recent survey conducted by the Economist Intelligence Unit of 1,254 senior business executives, including more than 300 chief executives, revealed the role real estate and facility strategies play in corporate sustainability efforts. Nearly half of all respondents named as their leading sustainability priority a goal that is addressed mainly through real estate-related strategies.

With buildings blamed for contributing up to 40% of the world’s greenhouse gas emissions, it is no wonder businesses are making changes to their real estate portfolios to help them meet their emissions targets. The likes of Bank of America and Goldman Sachs are building super-sustainable headquarters in New York that take advantage of all the latest green gadgetry. Not to be outdone, carbon emissions from Citi’s new European data centre will be reduced by up to 11,000 tonnes annually compared with a conventional centre.

While change is happening on the micro level, it is unclear how these efforts will translate on to the global stage. Legislation will drive change on a country-by-country basis, but sustainability is far from being globally accepted. What is happening, however, is the development of eco-cities and towns. These projects have the backing of world-class developers and sovereign wealth funds. The hope is that places like Korea’s New Songdo City, Abu Dhabi’s Masdar and China’s Dongtan will become the blueprint for cities of the future.

Encouragingly, the gloom hanging around some parts of the real estate sector has not distracted property developers from their green agendas. In the UK the first green leases are coming on line and developers are pushing ahead with sustainable buildings.

The credit crunch is not making life easy. The commercial mortgage-backed securities (CMBS) market this year has gotten off to its slowest start ever. Only one deal has been executed so far in 2008 and RBS Greenwich Capital predicts US CMBS sales will fall by 66% this year to $80 billion. This slump will follow 2007 when $234 billion of new CMBS was issued.

Even so, the property market has by no means ground to a complete halt. Undoubtedly, business is much slower, but those banks specialising in property and not dependant on securitization are hanging in there and even prospering. And those investors and developers with good commercial banking relationships are in a position to take advantage of some of the discounted properties on offer.

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