Regulatory Landscape:

1. Decree BACS:
   • Starting January 1, 2025, buildings with power over 290 kW must implement an automated energy consumption monitoring and management system. This is a step towards reducing energy consumption in buildings as part of a broader decarbonisation initiative for the tertiary sector.
2. Tertiary Decree:
   • This decree mandates that large tertiary buildings reduce energy consumption by 40% by 2030 and 50% by 2040 and achieve net zero by 2060, pushing the sector toward more sustainable operations over time.
3. Laws like APER and LOM:
   • The Loi APER accelerates renewable energy production, while the Loi LOM focuses on transforming mobility more sustainably.

These regulations require substantial investments (CAPEX), and businesses must determine how to handle these costs while ensuring they comply with the rules.

Challenges in Business Models:

• The asymmetry between landlords and tenants in real estate can make it challenging to implement required investments, as landlords may not directly benefit from energy efficiency improvements, especially in cases where tenants bear the responsibility for building operations.
• Energy Performance Contracts (CPE) can help by aligning the interests of landlords and tenants with performance-based remuneration for energy service providers.
• Financial support like CEE (Certificates d'Économies d'Énergie) can offset up to 15% of the investment costs, depending on the energy-efficient equipment chosen.

The Role of Governance and Collaboration:

• A new governance model based on collaboration between landlords, tenants, and other stakeholders is essential to ensure the smooth execution of the required investments.
• Collaboration is even more critical to ensuring successful property investment strategies in specific sectors, like healthcare real estate, where tenants are responsible for events under triple-net leases.

"Green Value" in Real Estate:

• Valuation models are beginning to integrate green value, considering the CAPEX required for sustainability and environmental performance. However, a more realistic environmental median that exceeds the high standards of newer buildings is needed to ensure that even older properties can be appropriately valued and incentivised.
• This green value can translate into better returns for well-performing buildings while potentially imposing a brown discount on less energy-efficient assets.

The Financial Sector’s Role:

• Financial institutions play a critical role in enabling this transformation by identifying energy performance improvement opportunities early in the investment process and offering preferential financing terms for green investments.
• FiReno+, a European initiative, is working to facilitate the financing of energy-efficient renovations and help overcome financial and administrative barriers in the sector.

Conclusion:

• The future of real estate in a sustainable regulatory landscape requires collaboration, innovation, and financial support to ensure that the sector adapts to upcoming environmental standards.
• To achieve the required environmental scale change, investors and financiers must work together to deploy the necessary CAPEX while leveraging opportunities for green financing and incentives, thus turning regulatory requirements into a long-term business advantage.

Real estate stakeholders can turn mandatory environmental performance improvements into value-driving business opportunities by addressing these regulatory challenges collaboratively.