General Commentary from Executive Chairman Neil Bannon

The conversation around sustainability in the Irish commercial property sector has evolved over the last 12 months. Although everybody was aware of the significance of the challenge last year this has been brought into sharper focus as the various sources of capital in the market have set out their stall. Access to and cost of capital, both funding and equity, is clearly going to be very different for assets depending upon their sustainability credentials. This has been most evident in the office sector where deals continue to be done in new buildings with market leading green credentials both from expanding entities and those relocating form brown buildings. As investor and funders watch this they are becoming increasingly concerned about the risk of obsolescent for older stock and how the value of older buildings will have to reflect the cost of bringing them up to standard.

It is interesting and, we think, helpful to see the conversation move from an aspirational desire to become more sustainable to a clear financial motivation to protect capital. This will accelerate activity in the market as capital positions itself to ensure it is a net beneficiary. Bringing market forces to bear will help our green transition and is a welcome development.

 

Property Management from Directors Ray Geraghty and Alex Patterson

As custodians of a nationwide portfolio of real estate the Bannon property management team are involved in multiple projects at any moment in time where the focus is sustainability and energy conservation. There is an awareness about sustainability and ESG measures among property owners, funders, asset managers, occupiers, and service providers which is driving positive change.

In the last 12 months Bannon have been involved in some very significant sustainability projects which are now delivering much need energy savings for stakeholders. One such project was completed at Athlone Towncentre Shopping Centre (in conjunction with the SEAI) at a cost of c.€1.6 million. As a result of the project energy consumption at the shopping centre has reduced by almost 50%.

 

Retail Agency from Directors James Quinlan and Darren Peavoy

Smaller Domestic Retailers are becoming more ESG aware however have not fully embraced the concept.  International and national retailers on the other hand have delivered significant ESG improvements across their portfolios with big improvements in solar generation and logistics improvements being a significant focus.  Some international retailers are beginning to commit to BREEAM Good fitouts however are seeking significant assistance from owners to deliver this. Some institutional retail property owners are very focused in improving the BER status of their high street portfolios whereas shopping centre owners are very focused on improving energy usage in common areas within their schemes.

Where the ESG agenda was previously being pushed by the owners, we are seeing a shift in this from a smaller group of retailers who require owners to sign up to their ESG agenda rather than the other way round.  Retailers are focused on reputation and branding, and they are utilising ESG credentials as a powerful marketing tool. This focus will begin to see a shift in the retail leasing market as it will influence building design and occupier’s expectations.

Valuations from Managing Director Paul Doyle and Director Niall Brereton  

The Bannon Professional Services team continues to embrace ESG within our reporting, whilst also complying with RICS Valuation Practice Guidance Notes on ‘Sustainability and ESG in Commercial Property Valuation and Strategic Advice’.  This Guidance Note requires the valuer to demonstrate how they have considered sustainability and ESG credentials in their valuation approach, calculations and commentary.  This commentary is required to include a reference to potential future cost liabilities to meet regulatory and investor requirements.

In the past year or so we have noted that our building owner client has become much more aware and reactive to ESG.  By example, if we are valuing a trading asset the client will most likely have responses to-hand in terms of our standard queries on the energy efficiency or otherwise of their premises.  Elsewhere, if valuing an older office premises, a client will likely have a solution modelled to enhance the property’s ESG credentials.  In the case of offices we continue to see a widening value gap between older/stranded buildings and those which are ‘B or better’

Investment and Office Agency from Executive Director Rod Nowlan

Sustainability has firmly moved to the top of the investment and office leasing agenda across all size requirements.  It is no longer a focus of just the larger lots sizes.  Its pursuit will be a key factor in the acceleration of “the big switch” where many office occupiers are beginning to act upon what they now determine is their new office size and style requirement in a maturing blended working market.  ESG is a key target in this mix.  As a consequence, we are going to see a material acceleration in office obsolescence creating a huge opportunity for those with the skills to efficiently transition these buildings back to the institutional mainstream. In this regard, valuing and selling these assets will require an in-depth analysis of the true costs associated with bringing them up to standard.

 

 

Internal from Chartered Surveyor, Sustainability Manager Cillian O’Reilly

Bannon has always had sustainability in mind within the office ever since Joe Bannon himself monitored how many pages were being printed by each team member. The culmination of this was Bannon developing and implementing an ISO 14001:2015 Environmental Management System which was certified by the NSAI in 2022.

Bannon’s Carbon Footprint is relatively low at 78.7 tonnes CO2E in 2023, none the less the firm has taken steps to target and reduce its largest contributors namely electricity usage and commuting milage.  Bannon has made huge strides to curate a greener and more efficient workplace and will continue to be a market leader as trends evolve.

 

 

 

 

We asked our leading experts for their views on achieving a sustainable future for the Irish commercial real estate sector:

 

General Commentary from Executive Chairman Neil Bannon

Sustainability impacts everybody, whether it is investors securing the long-term value of their assets, corporate occupiers demonstrating their environmental credentials to clients and staff, retailers reacting to shifts in consumer demand or funding institutions protecting the security of their loan books. There is no part of the property market that is and will not be increasingly impacted by the move to a zero-carbon future. This realisation was the reason Bannon established EVIA 3 years ago; a consultancy business whose sole focus is the delivery of sustainable solutions to stakeholders in the commercial real estate sector. Since its inception EVIA, working hand in hand with the Bannon Management, Investment and Consultancy teams, has delivered dozens of sustainability projects including LED lighting projects, smart metres and energy monitoring, solar power installation and increasingly we are seeing demand from clients to provide an overarching strategy to put their entire relationship with real estate on a long-term sustainable footing.

The route to sustainability is both challenging and exciting. It can be costly and yet the alternative is much more expensive for stakeholders in the industry. By pursuing a sustainable strategy that coordinates zero-carbon delivery with valuation and asset management expertise, the journey can be efficient and ultimately profitable.

 

Retail from Directors James Quinlan and Darren Peavoy 

Institutional owners have very much embraced the ESG agenda, retailers have been slower to embrace from a property occupancy perspective, but this is changing. There is a trend in Institutional owners delivering ESG improvements via refurbishment works in advance of new lettings in prime high street locations. We are now seeing this being followed by some of the major international brands that are taking leases on these properties where they are committing to BREEAM GOOD (and higher) fitouts. Retailers have been proactive in retrofitting energy efficient initiatives including new LED lighting to reduce energy usage and benefit from reduced air conditioning requirements due to the reduced heat generation. 

 

 

 

Valuations from Managing Director Paul Doyle and Director Niall Brereton  

The Bannon Professional Services team actively embraces and adheres to the latest RICS Valuation Practice Guidance Note titled ‘Sustainability and ESG in Commercial Property Valuation and Strategic Advice’ when undertaking valuation instructions. This Guidance Note requires the valuer to demonstrate how they have considered sustainability and ESG credentials in their valuation approach, calculations and commentary.  It may be necessary, depending on the nature of the instruction, for the valuer to seek specialist investigations by a third party advising as to the ability and estimated cost to bring an asset up to modern standards. Valuing assets of this nature requires an in-depth analysis of the true costs associated with bringing them up to standard.

 

 

Property Management from Director Ray Geraghty

Sustainability is a key focus of the Bannon Property Management team. The extent of our portfolio (150 assets) gives Bannon a unique position in the Irish marketplace to be leaders of change. At present there are a variety of ongoing projects across the portfolio which are focused on reducing energy consumption, reducing water consumption and reducing waste.

 

 

 

 

 

 

Office from Divisional Director Lucy Connolly

Sustainability in terms of office design and construction has become a fundamental and determining factor for companies when acquiring office space. With corporate ESG agendas now firmly in place, what was once a consideration, is now a key component in the acquisition process, which in turn is leading to increased demand for prime grade A office accommodation.

 

 

 

 

 

Investment from Executive Director Rod Nowlan

ESG has permeated every aspect of real estate, but in many ways has been led by the Capital Markets sector. Well before the adoption in April 2021 of EU’s Sustainable Finance Directive, major real estate players were readying themselves for the impact of ESG in terms of putting in place procedures for collating information and assessing and adjusting their assets and portfolios.  These institutions have either been acquiring or developing compliant assets while simultaneously selling assets which would fall foul of ESG regulations. Most smaller fund managers and private offices have now followed suite. Now that ESG goes to the heart of any asset due diligence, non-complaint assets have a difficult future ahead of them!  There will however be huge opportunity for those with the skills to efficiently transition these buildings back to the institutional mainstream. In this regard, valuing and selling these assets will require an in-depth analysis of the true costs associated with bringing them up to standard.