Property Perspectives: Conversations defining the future of real estate

The importance of sustainability

• natwest markets • Season 1 • Episode 1

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The latest trends and sustainability innovations in the world of commercial real estate.

Why is sustainability so crucial for the UK real estate sector? In this episode, NatWest’s Ashley Toy is joined by Rob Wall, Assistant Director at the British Property Federation and Emma Harvey-Smith, Chief of Staff at the Green Finance Institute for a deep dive into the big forces pushing sustainability higher up the agenda. They discuss the impact of post-pandemic demand shifts, the role of technology and regulation – and more. 

In this episode of the Property Perspectives podcast, NatWest’s Ashley Toy is joined by Rob Wall, Assistant Director at the British Property Federation and Emma Harvey-Smith, Chief of Staff at the Green Finance Institute for a deep dive into the big forces pushing sustainability higher up the agenda in the real estate sector. Listen today.

NB. This was recorded on 13 February 2025.

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SPEAKER_02

We need to drive attractive price to increase technologies. We need to drive the economies of scale that will bring the costs down and make this affordable for every household in the UK.

SPEAKER_01

I think the challenges are less around funding and much more about viability. You know, at the end of the day, those businesses who invest in real estate want to future proof their assets. So there's commercial value in making sure that buildings are decarbonised.

SPEAKER_00

Hello and welcome to Property Perspectives, an Atmos podcast all about sustainability in the real estate sector. I'm Ashley Toy. I'll be your host today. In today's podcast, we'll be discussing the biggest challenges facing the sector, and I'm very pleased to be joined by Rob Wall and Emma Harvey Smith. Emma is Chief of Staff at the Green Finance Institute with primary responsibility for unlocking growth and driving impacts across the business. Rob is Assistant Director of the British Property Federation, responsible for the organisation's work on sustainability. So let's get into it. I'll start with something big, and then maybe we can get into some of the detail later. But um Rob, if I could start with you, um what could the UK government do differently to help support sustainability in the built environment?

SPEAKER_01

Yeah, yeah, thanks Ash. I mean, that is a big question. Um but let me try and get try and give a uh uh a succinct answer. I think really, from our perspective at the PPF, there's five things that the government can do to really support the transition to a net zero real estate sector. Firstly, that's about providing policy and regulatory certainty. Uh, we don't have that. We thought we might have it. We're still waiting. Um, but that's a key one for the sector and for our members. Secondly, provide financial support in various ways. It may be direct grants and funding to small businesses or SME landlords or homeowners, or using the tax system to provide incentives for larger corporates, but find ways to provide some financial support. Um also there are real challenges that our members face around access to data. It's a rather technical issue, but it's a key issue, I think, for the sector. If we're gonna understand the emissions that the sector produces, if we're gonna develop those net zero maps, if we're going to understand the impact of interventions, if we're gonna report on progress, data is really critical. And also two more things, I think, where the government actually is already moving. So one is on planning reform. So planning is a barrier to lots of things, but also it's a barrier to retrofitting our buildings, particularly our heritage buildings, and also fix the grid. So great to see the government have a real focus on uh delivering uh a transformed grid. That's really critical as we move to more all electric buildings, so we need to increase capacity, we need to speed up connections, and we need to decarbonize the grid. So just five easy things there, Ash, for you for starters.

SPEAKER_00

We'll try and pick them off in some sort of order. But yeah, so data and clarity of direction are two things we hear a lot from our customers.

SPEAKER_02

So any different perspectives from uh from your perspective, well, actually, before we started recording, Rob and I realized we were covering both sides of the real estate sector. So Rob is covering commercial, and I'll come at this from a residential perspective. And there's really three key pillars to driving sustainable buildings in the residential sector. It's driving demand for energy efficiency improvements, it's building out the supply chain, and then it's developing the financial solutions that will actually help fund these projects. So when it comes to driving demand, we do need those policy signals that will support adoption. So whether that's minimum energy efficiency standards or energy-adjusted stamp duty land tax, we need to raise the awareness and the importance of these improvements to people's homes, how it can help reduce their bills. So a national communications campaign would be a first step towards that. And then actually, we need to drive attractive pricing of these technologies. We need to drive the economies of scale that will bring the costs down and make this affordable for every household in the UK. If we want to try and drive supply, well, we need to increase the skills base in the UK. We need to make this an attractive career for both existing boiler engineers and apprentices to move into. So making sure that it's a qualified, respected role and that there are the training opportunities, as well as actually improving the UK's manufacturing capability. We saw the Inflation Reduction Act in the US and the European Union's Green Deal help to really catalyse some of these net zero industries, whether it's solar manufacturing or heat pump manufacturing. How can we replicate that in the UK? And the last is the finance. We already have a diverse suite of financial solutions that can help homeowners improve their energy efficiency from green mortgages to unsecured green loans. We're working on new to market solutions like property-linked finance that could help. But those of the able-to-pay market, we need to have some concessional capital to provide blended solutions for that squeezed middle. And obviously, we need grant funding for the lower income and fuel poor homes as well. So we need to work with government, with industry, with finance to ensure that we have that full spectrum of financial solutions to help people meet net zero.

SPEAKER_00

Yeah, and it's really interesting, the difference. So it's it's good we picked up on it. The challenges commercial faces are very different and similar in some ways to the challenges that residential faces. So um that brings on nicely to the next part of the question, I guess, which is um how do you see demand for sustainable buildings evolving between buyers, renters, tenants, and things like that? And then maybe if if we are on residentials, you want to uh come maybe kind of go ahead with Rezi?

SPEAKER_02

Yeah, very happy to. So, on from a policy signal and policy driver perspective, there are some demand signals for the private-rented sector in the residential space. So we've got minimum energy efficiency standards for private rented buildings, which are looking to be increased to EPC or energy um performance certificate level C in the coming years. And interestingly, if you look north of the border at Scotland, you've got the Heat and Buildings Bill, which is looking to mandate energy efficiency improvements for all properties by the early 2030. So there are some of those signals. We need to ensure, though, that those policies are introduced in a sensitive manner and that you don't have unintended consequences, such as private-rented landlords exiting the sector and then those properties falling to more rogue landlords, for example. Um, but in terms of the other observation on demand drivers in the residential sector, um, slightly tangential, but you're starting to see a number of major energy companies starting to throw their weight behind retrofitting. So, you know, I won't name organizations today, but there are some that that will spring to mind who are starting to partner with financial institutions, they're starting to partner with retrofitting companies in order to deliver a smooth, seamless end-to-end journey and raise commun um raise consumer awareness on retrofitting. And that's important because it's also meaning that there's less barriers to entry for people looking to improve their home. So not a direct demand driver, but certainly helps remove some of the blockers.

SPEAKER_00

Yeah, and it's really interesting to see how Scotland have taken probably a slightly more forward approach on the EPCs and do we look to do something like that in uh England and Wales? Maybe we move that onto the commercial side, Rob.

SPEAKER_01

Yeah, I mean I think EPCs probably a whole nother podcast um ash, but own series, yes, absolutely. But in terms of uh demand for sustainable buildings, I think on the commercial side, so certainly with large corporate commercial tenants, there's huge demand for green buildings. Um whether there's a premium is another debate, but absolutely increasing demand on the commercial side. But I wonder if I can maybe just come back on the residential point. So within the BPF we have lots of ultra-rent operators, so investors and landlords who invest specifically in large-scale sort of residential assets. Um and they regularly survey their residents around what's important to them. Um and it comes back to Emma's point about demand because I think what's what residents are saying are the most important factors are one, location, two, security, three, value for money, four, it's the amenities that the the spaces the space provide, all the things that that are important to us. I think when it comes to sustainability, that is important, but it's important in terms of cost.

SPEAKER_00

Yeah.

SPEAKER_01

So how much do your utilities cost? And how much can a sustainable building bring those bills down? So yes, let's look at demand, but it's important how we talk about demand in a way that's really relevant, I think, to to residents.

SPEAKER_00

Yeah, absolutely. And the the pressures you kind of talk about with a large corpus are we've got to recognise they're fundamentally quite different to the the pressures for an SME and an individual homeowner or renter. So but that is again and probably another podcast in itself. So um let's move on to to tech, maybe. So so how do you see technology and innovation kind of uh moving forward the conversation on sustainability? Maybe Rob, I'll start with you first.

SPEAKER_01

Yeah, I mean it's it's critical. So we won't achieve a net zero real estate sector without innovation, uh not least when it comes to materials. So if we're going to deliver low carbon net zero steel or concrete, then we need huge amounts of innovation. So it's critical. I mean, one area that I might pick up on is around prop tech. So within the BPF we have the UK PropTech Association, so businesses who invest in technology solutions. Um and actually there's huge amounts of potential, I think, in the prop tech sector to really drive a transition to a net zero real estate uh sector because we have uh prop tech providers who can help make buildings more efficient. Uh-huh. So uh we're using less carbon, um, who can help you make better use of energy data. So you understand actually what the data is telling you. Um, you can identify trends, maybe find assets that are performing inefficiently. Uh, there are prop tech providers who can help you model your buildings to understand the impacts of of climate change, so to help you build climate-resilient buildings. And also now you have prop tech providers who can help you meet your BNG requirements, so those biodiversity net gain requirements by sort of modeling the diversity or or using drones or technology to understand the diversity of of areas and developments. So I think there's huge potential uh in this sector, and and to come back to where I started, we won't get there without innovation.

SPEAKER_00

Yeah, absolutely. And I I guess it coming back a bit in there to data, yeah, we are having conversations as a as a funder with data providers that uh two or three years ago we wouldn't have had because it is so important to the agenda.

SPEAKER_01

And I think it's important that government pick up on that. So we know government have their industrial strategy, data's fundamental to to all of that, and that includes the real estate sector. So be good to get on the agenda for ministers, I think. Absolutely.

SPEAKER_00

Emma, any different perspectives from the growing finance industry?

SPEAKER_02

Yeah, so just uh completely agree with everything Rob was saying there, particularly when it comes to construction materials and starting to decarbonize those quite carbon-intensive industries. I suppose if you're looking at the improving the energy efficiency and resilience of existing homes, actually the technology suite is pretty well understood. You've got solar and insulation and heat pumps, etc. Um, so there's definitely efficiency gains to be made and improvements in how they're produced to be able to bring down the cost. But actually, in in the Resi sector, the technology suite is quite well known by the people who know about retrofitting. Some Green Finance Institute research that we commissioned uh a couple of years ago showed that actually consumers had a fairly limited understanding of the major technologies that would reduce their carbon emissions. So a lot of people knew about recycling and they knew about solar panels, but there was a very, very limited sort of understanding or acquaintance with heat pumps and with solid wall insulation, etc. etc. So that just again reinforces the importance of communications, normalizing these technologies, ensuring that you've got trusted local voices who can inform and advise people on these. And just also making sure that in the back end you have quality advice and assurance sitting behind all of this so that consumers feel safe and trusted because they're often walking into uncharted territory here. Technologies are known, but not many people know about them. So let's put that sort of safety blanket around people.

SPEAKER_00

Yeah, absolutely. And I guess bringing all that to the consumer or the purchaser or whatever is is making it part of the conversation. And today it probably isn't as big a part of the conversation as it maybe should be. So it's it's on all of us to kind of to kind of put it there. Thank you. So um I think to try and turn it back back around a bit to Matt West and to funders then. So is funding a big challenge for the sector? And are there things that we could and should be doing differently? Uh maybe I'll start with you. We were talking about innovation in the sector. We've done a bit of work on some of the products, so yeah.

SPEAKER_02

We absolutely have. So as I mentioned earlier, you know, there there are already a number of financial solutions to help people, to help individual homeowners and landlords to improve their property. So there's green mortgages. I know Nat West offers a green mortgage and many other organizations do as well. We're starting to see a real emergence of green unsecured personal loans as well. So this is where they're not secured against your property. It's just like a normal personal loan. But we're also starting to see the emergence of new models that help to address some of the challenges that maybe green mortgages and green unsecured loans don't. So, for example, um the Green Finance Institute worked with Nat West on developing um the blueprint for a new solution called property-linked finance, which helps to overcome the payback period barrier to uh retrofitting, where actually the payback for some of these technologies can be 15, 20, 25 years. And maybe you aren't going to live in your property for that long and actually see all of those economic benefits. So, property-linked finance would help homeowners fund energy efficiency improvements and resilience improvements in their property. And then when you sell the property, um, the repayment obligation moves to the new homeowner who's benefiting from a warm, comfortable property. And it means that people are less deferred or deterred from um investing into energy efficiency improvements in the first instance. We've also got new models like heat as a service being developed with energy companies as well. Um, but really, in terms of those, you know, we've got those funding models coming forward. The challenge, as we discussed earlier, though, is the low demand for retrofitting means that those products aren't then taken up in the sort of levels that we'd want to see. So ultimately it all comes back down to getting those policy enablers in place, driving and encouraging demand, and just knowing and you know homeowners and government being confident that financial institutions are there, waiting in the wings, ready to provide capital when people want to make those improvements.

SPEAKER_00

Yeah, and I mean uh property link finance goes across both resume and commercial, doesn't it? And I guess reflecting from a funder's perspective, you you're in an industry that's been around for hundreds of thousands of years to try and innovate that is quite challenging, but also quite exciting that we've got something we can actually talk about. So yeah, Rob, any perspectives from the BPA?

SPEAKER_01

Yeah, I suppose if you if you look at funding from a an investor perspective or from a the perspective of a large of a large commercial landlord or property owner, I think the challenges are less around funding and much more about viability. Um if you look at the whole package of costs when it comes to not just building new environmentally sustainable buildings, but also retrofitting large existing buildings. The costs are significant. You've got regulatory costs, you've got construct construction costs that have gone up significantly in recent years, you've got the planning costs, and also the cost of delay are a huge challenge. So all of those issues make it increasingly difficult for business cases to stack up when it comes to large developments or large buildings. It's a really tough market at the moment. I mean, how do we get over that? Well, I guess some of that is is sort of um at a macro level, so the market conditions have a big part to play, whether it's interest rates or inflation. Um but there is action that government can take to mitigate some of those challenges. And we've touched on them already. So it's regulatory certainty, so businesses have the confidence to invest in retrofit solutions, it's planning reform to speed up decisions because delay is very expensive. And also it is it is looking at the tax system to see if there are fiscal incentives that can encourage your reward investment. And I guess for large um landlords, that might be looking at bat treatment, it might be looking at how you uh reform business rates to incentivize investment. There are things that that we can do through the tax system. But I think issues around viability are are really fundamental.

SPEAKER_00

So I think the broad message is that lots of different things. There's gonna be lots of 1% that get you to to a different series. It doesn't seem to be a golden bullet, does that? So if I can put you under a bit more pressure now, we'll do some some some short fire stuff. So um if there was one thing that you could fix tomorrow, what would it be?

SPEAKER_01

Rob I've touched on it already. I think uh the biggest thing that we'd like to see uh certainly from government is uh policy and regulatory certainty. So just to understand that roadmap to net zero so that our members, so that investors, so that property companies can make informed decisions and consumers can understand where the market is going. So that certainty would be key for us. We thought we might see it from this government a little bit sooner. Um we haven't seen it yet, but uh at the BPF it's something that we continue to lobby government to provide because it's so critical.

SPEAKER_00

Right. I mean, yes, certainty would be great, certainly from our conversations, Evan.

SPEAKER_02

Very similar. It would be seeing that certainty that then stimulates demand to improve properties, whether that is through you know sensitively designed policies, whether it's through communications campaigns, whether it's through bringing down the price of these technologies, it's just making those types of improvements to properties an absolute no-brainer across the board.

SPEAKER_00

That's good. Um so where is your focus? I guess Emma, I'll start with you. Uh for for this year. Where's your energy going?

SPEAKER_02

Where is my energy going? My energy is actually going into introducing property-linked finance into the UK market. This is a $17, $18 billion market in the US. It's called PACE in the US. We should be able to replicate this in the UK. And our research at the Green Finance Institute estimates that this could be a £52 to £70 billion billion market in the UK. So we want to get that launched this year and start to see that model scaling and helping people and helping property owners, both resi and commercial, improve their properties.

SPEAKER_00

Anything we can do for innovation and change is good, right? Um Rob, how about you?

SPEAKER_01

Yeah, well, two things that we're keen to drive forward at BPF this year, really. So sustainability is is a br a big word and covers a lot of things, and we've spoken about carbon and net zero buildings. But actually at BPF we're keen to go beyond net zero and look at actually how the sector can play its part in protecting and restoring nature. And also, if I can, quickly a second point as well. Um, we know the government's very ambitious around growing heat networks, and there's a lot of regulation, legislation coming downstream around uh heat networks. So we're doing a programme of work around heat networks and we're launching our heat network network, get the pun. Uh later. There you go. Thank you very much.

SPEAKER_00

Excellent, right. So I guess to put me and now West on the spot a bit, if you could ask us to do one thing, what would it be? Rob, I'll start with you.

SPEAKER_01

Yeah, so I guess it would be to find more ways to deliver transitional finance. So more ways to get finance into those brown to green projects so that we can really decarbonize our most uh inefficient and uh dirtiest building. So that would be the challenge back to you, Ash. Absolutely. I will take that challenge.

SPEAKER_00

Thank you very much.

SPEAKER_02

And then I would love to see funders like yourselves really starting to dig into resilience improvements in properties. We just need to look at what happened in Valencia last year with the with the floods and what's happening in California with wildfires, with Florida, with flooding. Our properties, anyway, our properties are hugely exposed to a rapidly changing climate, and helping people to improve the resiliency of their property, whether it's a commercial property or a residential property, is vital, and there's going to be such an important role for financial institutions to play in funding that.

SPEAKER_00

Another good one to take away. Thank you very much. Right, so we'll start, we'll finish with a prediction. Um, where do you think we'll be in 2030?

SPEAKER_02

Uh I was toying with this, and I'm going for an optimistic outlook for 2030, which is I would love to see retrofitting in the same place that we're seeing electric vehicles at the moment. So really hitting that hockey stick curve. Starting to see, you know, I'd love to see heat pumps, solar panels, insulation being part of the day-to-day conversation when you're looking to improve your property. Um, my one caveat to that though is that won't just happen by osmosis and it won't happen by itself. It needs to happen through coordinated action between government, industry, finance, consumers, local authorities, and well beyond. So if we see that collaboration, that coordination, and that pulling behind one key goal, that's where I'd like to see this industry in 2030.

SPEAKER_00

Loving the optimism. Hopefully we can continue that. Rob?

SPEAKER_01

Yeah, let's be let's be glass half full. So again, I think we're quite optimistic. Um, and take Emma's point around collaboration is really key. Now we've seen, if you look at where we've come over the last couple of years, it's been huge. The the transformation in the debate and in the and in the focus on sustainable solutions is huge. So we've made huge progress in recent years, and I'm sure that progress will continue. I'm not sure it will continue because of what we hear from governments, um, but I think it will continue because the direction of travel is clear and the market is pushing investors and owners in that direction. You know, at the end of the day, those businesses who invest in real estate want to future proof their assets. So there's commercial value in making sure. The buildings are decarbonised. Absolutely.

SPEAKER_00

And I think over a bit of time and a bit of proof will continue to work its way down through the industry. So yeah, that's great. Thank you very much, both of you. Really appreciate you coming in and look forward to maybe continue this conversation years' time and see what we've got in. So I think that's all we've got time for today. Thanks so much to our guests, Emma and Rob, and also to our listeners. Just another reminder to like today's podcast, click like and hit the subscribe button so you get the latest episodes as soon as they're available. Be sure to check out the show and links for more tools and resources and step by step guides to help you on your sustainability journey. Until next time.