Challenges in Real Estate Development

The developments in sustainability legislation,particularly the EU Taxonomy, have significantly changed the market. This hasespecially affected real estate developers, who now have to do more to maketheir properties profitable. Investors are increasingly basing their finaldecision on compliance with the new regulations. A well-built property in arented state is no longer a decisive factor for sale.

As of 2023, sustainability requirements have becomethe foundation for buying and selling properties. Due to the many changessurrounding the new requirements, staying adaptable is crucial. Developers mustconsider several key factors from different perspectives: the income from theproperty and the amount of rent it generates. What will the rent yield overtime? The appraiser will determine the rent level based on this. The futureprospects of the property will also be taken into account.

For both developers and investors, Europeanlegislation is vital. Properties must meet the latest requirements. Developerswill make their properties more attractive to investors, ensuring they don’tend up stuck with them. This will also encourage investors to invest earlier.

In addition to the updated European requirements underthe EU Taxonomy, tenants themselves have more interests in sustainability. Theyare concerned with air quality, daylight levels, and the use of non-toxicmaterials. Our Environmental, Social, & Governance (ESG) sets the tone forthis. ESG criteria also include social aspects such as health and well-being.Tenants value buildings that provide a healthy and safe environment. Developersmust pay attention to this as well, as it could be a turn-off for investors ifignored.

Finding investors, loans, and tenants can bedifficult, especially when a project is considered risky, in combination withfailure to meet sustainability requirements. Finding financing can thus be asignificant challenge for developers. Tenants, meanwhile, want certainty. Theydon’t want to face unexpected costs or disruptions due to hidden defects.

The opportunities for green investment andcertification are endless. Since the EU Taxonomy with its classification systembecame legally effective, developers can no longer get away with simply saying,"we are sustainable." With the presence of this new regulation, thereal estate sector can now assess organizations based on the sustainability oftheir green investments. If this is not the case, financing will be moreexpensive.

Overall, the new regulations are now an integral partof the sector for all involved parties. For developers and investors, the newsustainability requirements are a must. Tenants undeniably benefit from theserequirements. Real estate is a complex and challenging sector that can fostereconomic growth and urban development. Now more than ever, it’s crucial that wecollectively equip new and existing buildings with sustainability labels.

We translate real estate challenges into technicalsolutions that work – both now and in the future.

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