Kathryn House
What role can data play in enhancing property values, meeting ambitious sustainability goals, capturing the best occupiers and ensuring that property owners are on track in the ongoing race to net zero? And how do investors leverage data to make the right investment decisions? It's a topic we'll explore in our latest Talking Property episode. Can big data provide a big payback?
Carl Brooks
There's a building evidence base that sustainable buildings are not only maintaining or increasing their value, but also being more attractive to potential occupiers and protecting that rental income over the long term.
Kathryn House
That's Carl Brooks, the Global Leader of Sustainability for CBRE's Property Management business.
Chris Nunn
We run a quite innovative, what we call the Wellbeing Index survey that compares Scape residents, over 1, 000 residents respond, to non Scape residents, a broader cohort out in private rental accommodation in the market at similar age and demographics. And what we found is Scape residents tend to be better mental health, better connection to friends and family, sleep better, eat better, exercise more regularly so that they've got a range of health and wellbeing metrics that we are looking at through this Wellbeing Index survey.
Kathryn House
And that's Chris Nunn, the General Manager of ESG for Scape, Australia's largest student accommodation provider. And I'm Kathryn House, your podcast host. Carl, thanks so much for joining, as I know it's quite early in the day for you, given that you're based in London.
Carl Brooks
No problem at all. It's a pleasure to be here. Thanks for inviting me on.
Kathryn House
And Chris, I'm delighted you could also join us to provide your insights, not just from Scape, but from your 24 years as a sustainability expert. From looking at your LinkedIn, I can see that you also have a London connection having completed your Masters of Sustainability at the London School of Economics.
Chris Nunn
That's right. Thank you for having me. Pleasure to be here. I lived in London for six years. I did my Masters at the LSE in 2005, and I worked for a large multinational architecture, engineering, project management cost consultancy in London for five years as their Sustainability Associate Director.
Kathryn House
And not missing the London weather?
Chris Nunn
No, no. Sydney weather is much preferred, but London certainly has its advantages.
Kathryn House
Absolutely. So, let's jump into it. Data and the ability to have those clear data insights. It's one of the huge challenges that property owners face on their net zero journeys. So, how do owners collect and effectively analyse sustainability data and then leverage it to make the right investment decisions. Such as do they hold and enhance an asset, or do they sell? Carl, perhaps I could start with you. I know CBRE invested last year in Deepki, which is an entrepreneurial data company based in Paris that monitors billions of square feet of real estate in about 65 countries to help optimise sustainability performance. You've really been at the forefront in deploying Deepki to CBRE's global property management clients, and Australia is one of the next cabs off the rank. So why is sustainability data such a key focus area and why has it been so hard to collate data in the past?
Carl Brooks
So, I think there are many ways of answering that. I think sustainability data is such a key focus now because we all understand the importance of unsustainability performance within real estate. Thinking specifically around the environmental impacts, most of our clients are setting net zero targets now to try and mitigate the worst impacts of climate change. In order to do that, we need to make sure we know exactly what our buildings are consuming. Globally the real estate sector is responsible for around 40% of those emissions. So it's really important that we, as a sector, look at this area seriously to ensure that we've got the right plans in place to minimise the impact of the kind of properties that we own and manage. Why it's been so hard to collate in the past is because, by definition, it's such a broad field in such broad terms. Sustainability covers everything from energy and utilities to waste, to biodiversity, to social value, to health and safety, all of these different aspects there. So, in collating sustainability data, you are bringing it in from multiple sources, even within each of those categories. From a utility perspective, that could be from smart metering, it could be from invoices, it could be from meterings taken on site. So, trying to corral and aggregate data into one place means that the quality is inconsistent and the ability to bring it all into one lens is a bit of a challenge. So really what we've been trying to do with Deepki is to use Deepki as a funnel to bring all of those disparate sources together to bring some clarity to the picture we're trying to form around performance.
Kathryn House
It's a good point that you make about this, and I know, Chris, sustainability is a really huge focus area for Scape, and I know you've developed your own relationship with Deepki after hearing about the CBRE tie-up. Can you talk me through why data is so critical for Scape and the impact that you're finding that this better data is having on your overall performance?
Chris Nunn
Yes. ESG data is critical to a lot of different aspects of managing a real estate portfolio, including Scape, which specialises in student accommodation and just getting into the build to rent space as well. I think perhaps ESG data and reporting systems were more common in commercial real estate companies managing office portfolios. I used to work in such a portfolio and office and retail, industrial were the mainstays, but now we're seeing the same level of ESG expectations moving into alternative asset classes including residential for rent. So, it's the same global institutional investors who invest in office retail and industrial as invest in Scape. We've got a large cohort of very leading multinational investors from Europe, Canada, Middle East, et cetera, and they all apply those same high ESG expectations from their experience in commercial real estate to investing in the living space. So, our investors certainly expect rich ESG data and reporting. And also there's an internal drive, of course, for asset optimisation and minimising utility costs. But I think also, and what attracted me to Deepki actually, was the ability to create bespoke asset attribute data and surveys that can capture all of the different types of information about the portfolio and the assets that we need to report to our investors.
Kathryn House
So, I guess access to capital, maybe that's where we could get to now. That is a huge focus area right now with the way the market is tracking and being green can help with that. Chris, I know that Scape last year struck a $1.4 billion sustainability linked loan where you'll be able to convert that debt into sustainable financing in the future as you lower your emissions and reduce your waste. So, what savings will that deliver to Scape and how integral was data to getting that deal across the line?
Chris Nunn
ESG data is absolutely critical and is the foundation of a sustainability linked loan such as the one that Scape struck with its consortia of lenders for our core program on that $1.47 billion debt facility. The interest rate discount was 0.05% or five basis points, and that equates to a $750,000 interest rate saving every year that we hit the sustainability ,loan ESG targets. And we chose through a series of discussions with our lenders and with a second party opinionary provider who validates the sustainability link framework being sufficiently material and ambitious, we chose two ESG targets. One was switching to a hundred percent renewable electricity across the portfolio by the end of the loan tenor in three years, and also having all the core program assets rated using Green Star performance, which is our domestic Australian equivalent to premium use or LEED for existing buildings. It rates the operational performance of a building in its use phase. And we're working with CBRE actually on that who's performing the Green Star performance ratings as well as our energy water waste audits that give us the pathway of improvements underlying that. And so that has already converted to a sustainability loan. And our year one targets last year were met. So, we entered our renewable electricity contract with a large wind farm operator, Iberdrola, the largest wind farm operator in the world, has a big wind farm here in Australia called the Capital Wind Farm, 140 megawatt wind energy plant. And we chose wind rather than solar, which you might think, oh Australia, sun, surely it's solar. But our load profile tends to actually be more at night because we have a continuous 24/7 operating environment, so wind fits our load shape a little bit better. So, we've done the SLL, so I've unlocked the SLL for year one. Now I've got a second-year target. There's year by year targets. I've got to get more of the assets across to the renewable electricity contract and more rated and ultimately get there next year for the whole portfolio. So, that's a bit of an overview of the sustainability linked loan at Scape.
Kathryn House
So, a $750,000 interest rate saving, that's pretty significant. Carl, do you have any other stories that you can share, regarding the ways in which you've seen clients use data to improve their bottom line?
Carl Brooks
No, absolutely. And I'd say there are three areas, one of which Chris has covered around access to capital through sustainability linked loans and better terms of finance. The other two areas that we're seeing is around the asset value itself, protecting or increasing asset value. So, one of the analyses that we do through the Deepki platform is to look at building performance data overlaid over the CRREM pathways. So CRREM is the Carbon Risk Real Estate Monitor, and that's really like an initiative that grew out of Europe but is mapped across countries globally now, which looks at what a Paris aligned climate target is. So i.e, to achieve net zero by 2050. And by overlaying the data on that pathway, we can demonstrate to clients the point at which their building would potentially become stranded, for example, i.e, the point at which it's no longer tracking its carbon emissions to the downward pathway towards 2050 that the Paris Agreement demands. So what that means is we can work with clients to prioritise where and when to make investments in the performance of those buildings to ensure that they're not then focusing on the wrong buildings, where if buildings are performing well, then let's leave those alone for now, but let's focus on those which are likely to be impacted were there to be a sale in the offing. That's one area around protecting the client's bottom line by protecting asset value. The second area is related to the NOI at the buildings themselves, so the Net Operating Income there, and that's all around the operational efficiency of the building, ensuring that we're able to keep cost of occupancy down and therefore, alongside all the sustainability features, make those buildings more attractive than maybe the building next door. So, we are seeing more evidence now of green buildings, sustainable buildings, being more attractive to potential occupiers. And our own research within CBRE last year was a big study of LEED certified buildings in the US and the fact that there was a double-digit increase in rental premiums of those buildings due to the increased sustainability performance of those properties. So again, there's a building evidence base that sustainable buildings are not only maintaining or increasing their value but also being more attractive to potential occupiers and protecting that rental income over the long term. So those are two more examples to add to that point.
Kathryn House
I think that's so important. Everyone wants to do the right thing, but when you can actually see those bottom-line savings, as well, from an investment point of view, I think that really does build that base case
Chris Nunn
I agree. There's a study in a similar vein from Australia that looked at 350 properties in the office sector and the five-star NABERS properties had a 9% value premium above non-rated buildings. They had better rental returns, lower vacancy, lower outgoings, and reduced incentives. And, flip side, I think there was a real green premium and also a brown discount. So, the lower rated buildings had 10% lower vals and 9% lower rents, as well. So there really was that correlation in Australia between green building ratings and core property metrics.
Kathryn House
It's interesting you mentioned NABERS, Chris, because I think that's getting exported to the UK now, I believe, Carl.
Carl Brooks
That's correct. So, we've been looking at NABERS with interest for a number of years now in the UK. I mean, I think Europe has been pretty advanced in its thinking around sustainability and we've been very well supported by strong legislative framework from the European Union as well as the UK Climate Change Act back in 2008. But I think when it comes to the other lever we can pull, which is around building ratings, NABERS has been one that's really shown huge value in driving change in the market. Obviously, a lot of property in Australia is local authority, local government led, and by defining a minimum star rating that's really helped accelerate improvement in that sector. So, it's like an interesting case study of how a building rating system when widely adopted can really drive change upwards. And through our industry work and as part of the Better Buildings Partnership in the UK, they've brought NABERS across as part of their Design for Performance standard and then NABERS Energy UK as well, which we're just starting to look at for the office stock in the UK as well. And it's really important to look at all of the different ranking and rating systems to see which one is going to have the most impact in raising standards. But NABERS is an example of one that's really translated from theory into operations and one that we're hoping has the same impact in the UK and across Europe perhaps.
Kathryn House
Where would you place Australia in that whole sustainability conversation? How are we tracking relative to other countries do you think?
Carl Brooks
We have a phenomenal team working in Australia, work very closely with Abhi Balakumar in our Australian Property Management business. He's really leading the mobilisation of the Deepki platform, but he's also working with a number of large account clients who are setting very robust targets around sustainability. And there's probably as much of a focus in Australia as there is in Europe at the moment, and an awful lot of really great work happening over there. What's really interesting as well is we’re learning an awful lot from Australia on the social value side, place making, community engagement, health and well-being aspects, which seem to be much more advanced in some ways in the Australian market. And the beauty of my role and what I'm really grateful for is being able to learn from all of these different teams from across Europe, the Americas, and then Asia Pacific as well, and try and cross-pollinate these ideas and best practice to make sure we can bring up those regions who are maybe lagging and transfer best practice to other regions, too. So, it's a really privileged position that I'm in.
Kathryn House
That whole idea of social value, is that something that you're looking at, Chris, where you're rolling out what you're doing at Scape around ESG?
Chris Nunn
We certainly have a massive focus on the S, the social and governance aspects of ESG, certainly. We run a quite innovative, what we call the Wellbeing Index survey that compares Scape residents, over 1, 000 residents respond, to non Scape residents, broader cohort out in private rental accommodation in the market at similar age and demographics. And what we found is Scape residents tend to be better mental health, better connection to friends and family, sleep better, eat better, exercise more regularly so that they've got a range of health and well-being metrics that we're looking at through this Wellbeing Index survey through which we can demonstrate that there is a health and wellbeing benefit to being a Scape resident and all the programs that we're running around community building, environmental education, engagement on waste management, other health and wellbeing initiatives, access to public transport, day trips, all the great engagements that we do at Scape with our residents to make them feel part of a community actually do have a measurable material health and wellbeing impact.
Kathryn House
So perhaps just segue into something, and maybe it's an elephant in the room, maybe not, but Carl in this current still tough economic climate do you think that some landlords are potentially deprioritising sustainability initiatives?
Carl Brooks
I think conflicting priorities are coming in as opposed to anything being deprioritised necessarily. And I think for some of the themes that we've been discussing so far today around value, there is a real clear benefit to maintaining the sustainability is a priority. And in fact, just this week in the UK, the boss of the CBI, the Confederation of British Industry, came out to say that you really can't be pro-growth without being pro-green. And I feel like saying that actually, "the question isn't can we afford to go for net zero? The question is can we afford not too?" So, the longer we leave things, the more expensive things become. So, I think there is still a move, particularly with our large institutional investor clients, who recognise that sustainability is just good business. So I think our challenge, and going back to the original question around data, is to show clients who maybe aren't yet fully on board with sustainability as being a value creator to really show them what the risk of not looking at sustainability is by showing them where the risks sits in their portfolio and what the impact of that might be, but also what the opportunities attached to sustainability are. So again, data really forms the foundation and the building blocks for us to keep portfolios under constant triage and identify to clients how they can better mitigate risk and better exploit opportunities as they arise by taking decisions with a good foundation of knowledge as opposed to just putting their finger in the air and guessing roughly which way the wind is blowing.
Kathryn House
So as an extension of that, I guess, how will not having these initiatives impact the ability, do you think, Carl, to attract occupiers in the future? And I'll shoot to you next Chris on this front from a student perspective, but Carl, what do you think in terms of your office occupiers?
Carl Brooks
I mean we're seeing social demographics is a really interesting area of study to look at what the future office looks like, what the future workplace trends are. We talk about the impact of the pandemic changing working practices and actually changing what's working expectations from the generations who are coming into the workplace now. And these are our future leaders, right? So, the culture that they're setting or the expectations they're setting will eventually become workplace culture. So how we respond to that is going to be really key. And we are seeing that there's a lot more interest, a lot more hits on the parts of CBRE's website, for example, on our sustainability elements. So we know that people who are looking to come to work for us, and I'm sure it's the same for other companies everywhere, that they're wanting to make sure that they're working for companies who have a shared value proposition that they have and they're wanting to work somewhere where they feel they can do some good or certainly do less harm than maybe they could have done before. So it's a really important aspect of the war for talent, really, just to make sure that we can show that we are offering a workplace which supports them and their needs, but also has a wider, stronger sense of corporate citizenship around the impact and double materiality of the business, the impact on the environmental society as well as how society and environment impacts them. So, we're seeing a lot of interest in this and a lot of expectation now from the younger generations.
Kathryn House
So, I guess by extension, Chris, we've talked about office occupiers, but how much is that playing into where students are making their decisions? Are they really wanting to be in buildings that have these high green sustainability standards?
Chris Nunn
This is a generation that knows about climate change, that's grown up with that as part of their psychological baggage if you like. These people do definitely understand broader environmental and global social issues, and there's evidence to say that they're giving effect to those values when they choose a place to live as a student. A study from 2023 found that 61% of students thought that when they're choosing their accommodation, their accommodation provider's commitment to reducing their impact on the environment was a factor in where to live. 61% saying that. 17% saying they would be willing to pay extra for technology that made their building more environmentally friendly and 13% saying they would pay extra to live in a carbon-neutral building. So, quite interesting insights there into a small cohort actually very strongly indicating that they have a preference and would pay more for carbon-neutral and technology, energy efficiency, solar panels, etc. that improve their impact on the environment. And the bulk of the respondents of that survey saying, "look, it's one factor among many, but I definitely thought about it and, all other things being equal, that could have been the difference between me coming to Scape and going somewhere else." So, we are seeing evidence in the market of that. And we do an annual survey, which I mentioned earlier, the Wellbeing Index, and we ask a lot of ESG themed questions as part of that. And we do see that concern about indoor environmental quality, 41% saying that they're interested in fresh air ventilation and that they want to make sure they have enough fresh air, 40% concerned about indoor air quality and pollutants. A lot of our residents coming from China, India, places where air quality is not as high as Australia and wanting to make sure that they're going to have a comfortable, safe, healthy indoor environment that it's not going to be too noisy. That was a big factor, 39% saying that's a factor, 41% saying they want greater access to green space and some people being concerned about being too hot or too cold in their room. So standard sort of environmental comfort conditions. So absolutely we are seeing that evidence from international studies like the one I started earlier and our own research of our residents when they're staying with us.
Kathryn House
Very different from my university days. There was a lot of noise and probably not very good indoor air quality.
Chris Nunn
No, that's right. And I think that's one of the benefits of Purpose Built Student Accommodation, particularly for parents as well as the student themselves. There's substantial anxiety around moving to a new country. Maybe English isn't your first language, you're facing into first year at uni, exam pressure, socially dislocated. And we at Scape believe that it's our pastoral care to have a wraparound service. We call it Scape TLC, Tender Loving Care, build that connection to others so they've got friends within the building, day trips out to nature, so they've got a connection with nature, curated experience around cooking classes and fitness and nutrition and drug and alcohol education and respectful relationships around diversity, equity, inclusion. So, that's a full program of engagements, activations, community building which you have in a Purpose Built Student Accommodation community, that you don't have in private rental accommodation. And that's really our main competitor is, should I just go and rent in the broader market or should I stay at a Purpose Built Student Accommodation. We see more and more people seeing the benefit of Purpose Built Student Accommodation, particularly when they move countries to study overseas.
Kathryn House
Scape TLC, I like it. So, if we zero back in on data and why it's so important, there's been a huge focus recently on greenwashing. How important is the data piece when we are considering the risk of greenwashing or, I guess, by extension people greenhushing?
Carl Brooks
It's an interesting one and that move from greenwashing to greenhushing as well, where people are almost so scared of making claims which are false, they'd rather not make any claims at all. So, I think both of them have negative impacts, but I think really, what we've always said for an awful long time is that the data gives us the insights to tell us how a building or a project has performed. And actually I've always said and tried to instill in the teams that I work with that actually it is as important to understand why things don't work as opposed to promote and identify where things do work. So I think as long as we're using data to have a clear plan of where we are going, we shouldn't be afraid of poor performance as long as there's a plan to then correct that performance. So, again, it comes down to as we get more clarity over data, more coverage, more broader data sets, better data sets, of course the claims that we were making five years ago have been restated five years later. That's not to say that we were greenwashing five years ago. It just means to say that we've got much more visibility over performance now, and I think that that's absolutely fine to own that and admit that that's the case. So, I think provided it's underpinned with sound understanding of performance and sound data, then we should fear greenwashing because that is misleading. But we shouldn't necessarily be greenhushing performance if we think it's going to be received negatively in our peer group.
Chris Nunn
I think there's three antidotes to the risk of greenwashing. One is to make clear and precise claims with no exaggeration, ambiguity or lack of precision. What have you done and what measurable outcomes have you achieved? And I think if you stick to that formula, that's important. Obviously that has to be based on the second point, which is high quality data and we're using Deepki to get much better visibility over our data completeness. There's a good feature in Deepki which shows at the asset and portfolio view what percent complete your data points are across a range of metrics, what carbon factors are being used. So we've got full transparency over our data so we can make those precise claims. And then thirdly, aligning to global standards. If you are reporting in accordance with GRI and following the Global Reporting Initiative and you're following the guidance documents and aligning to other international standards like GRESB or ISSB and TNFD and TCFD of course, but as ESG managers, we have to be across the evolution of all of those global standards and be doing the jigsaw puzzle of which of those is asking me what and what underlying data do I need to comprehensively report against each of those global and local standards. So that is a big part of avoiding greenwashing is to be across all the global standards and report in accordance with standards and then have your data and disclosures verified against those disclosures. So I think they're the three things, the clear precise claims, high quality data, alignment to international standards.
Kathryn House
And so maybe the final question for you both and Carl I heard our Global Head of Property Management talk about a CBRE mantra of being 'mean, lean and clean'. I quite like that. Can you talk me through that? And do you think that data is pointing towards owners seeing a brown discount if they don't heighten their sustainability focus?
Carl Brooks
No, absolutely. And mean, lean and clean is one that we use a lot because it's really around recognising that there's an awful lot that we can do first and foremost through our management. I mean I think we're seeing property management taking a much more prominent role in the ultimate performance of our clients because actually good management practice, i.e, being mean with how energy is being used onsite is the first step of any energy efficiency or sustainability project plan. It's very easy to jump straight to the high capital, blue sky, big ticket items, but there's an awful lot that we can do just through good, sound management. Lean is really around then when you're specifying projects, and that could be large capital works, but it can also be routine replacements of lamps or filters or all the things that form part of our plan preventative maintenance processes, around making sure that we're choosing the best, most practicable sustainability or efficiency option there. So being lean with how we're using energy. And then finally it's then looking at, okay, what can we do to either procure renewable supplies to the building to remove emissions from our Scope Two data set or it could be around specifying onsite renewables as well. So it's taking that sort of pragmatic approach where we're first of all focusing with the things that we can control, then the things that we can influence before we then maybe recommend to our clients around capital and improvements to those properties. When it comes to the premium and discount thing, I know Chris touched on this earlier and we are seeing more evidence around rental premiums and value increasing around green building features. But I think there is a huge risk in the market around this brown discounting and almost creating a two-tier market where sustainable buildings become the norm, that becomes the standard expectation. So then you create a secondary market of buildings, which may be, because of their design, and again, thinking about the differences between Australia perhaps and Europe, we have a lot of very old buildings in Europe which are still in use. Think about all of the buildings in central Paris, for example. These are incredibly old buildings which have high heritage features, which may be more challenging to treat. And because of that they may suffer a brown discount potentially because it's just harder to get them to align with the energy efficiency expectations that a net zero target points towards. So I think we will see more evidence of brown discounts on hard to treat buildings or change of use, for example, as well as those high performing buildings commanding ever higher rents.
Kathryn House
Any thoughts on that, Chris?
Chris Nunn
We are doing things for our investors, uploading our entire data set of two years’ worth of utility month by month and providing them with literally every invoice. We have investors who are asking for that level of disclosure at the moment, and I think they're doing their own analysis trying to find that green alpha, trying to validate that their investment in Scape is going to give them higher returns. So I think we are seeing both ends of the spectrum. More and more ESG related due diligence and more and more trawling through ESG data hunting for green alpha.
Kathryn House
Look, thank you so much for joining today. Carl, I think it's going to be really interesting as we do deploy Deepki more broadly in Australia. I think there's just so much desire and demand for that data that can help people make better investment decisions. And Chris, great to see that Scape is really at the forefront here in what you are rolling out across your portfolio. And to see that you're getting those real returns, it's not just ticking a box. You're getting those real savings coming through at the same time. So, such a pleasure to have you on the podcast, Carl, and enjoy the rest of your day. I know your daughter has a big night tonight, going off to a prom.
Carl Brooks
Absolutely. We'll be seeing her off later on. It'll be lots of fun.
Kathryn House
Fabulous. And Chris, thank you so much for joining as well. It was really a pleasure to have you on the program.
Chris Nunn
Absolute pleasure.
Kathryn House
To our listeners, thanks for tuning in. If you like the show, you can subscribe through
Spotify,
Apple Podcasts or your favourite podcast hosting platform. We'd also love it if you could rate or review Talking Property to help spread the word. And if you have any questions or feedback, you can drop me a note any time via
[email protected]. Until next time.
