- Romain Poulles
APPLYING THE CIRCULAR ECONOMY TO THE REAL ESTATE SECTOR: now or never!
The real estate sector has seen some upshaking in recent years. But he sector has NEVER experienced a real revolution or major disruption. Housing prices are exploding in some regions and have become completely unreasonable for example in Luxembourg. A housing "crisis" orchestrated essentially by a growth crisis.
The twin threats of Covid-19 and climate change have not only exposed many vulnerabilities within our systems, but have also illustrated the need for collective action and a paradigm shift in our approach to crisis management.
The real estate sector is under stress, with new ways of working emerging faster than ever before and having to be implemented in often monofunctional, rigid buildings that leave little room for adaptation. Often the total demolition of interior fittings is the only option open to those seeking to redesign the space they occupy (if not the total demolition of the building). A building designed according to the principles of the circular economy is also a building that is adaptable and flexible in use.
To paraphrase Darwin: "It is not the strongest buildings that last the longest, nor the smartest (read "SMART") that will maximise their value. It is those that are most adaptable to change."
Prevention, preparedness and resilience are essential to our future.
With the help of the circular economy, it is possible to create a framework for achieving environmental and social goals, while achieving better economic performance.
As the largest consumer of raw materials but also a producer of waste, the construction sector shows itself as an ideal candidate for a circular economy that aims to reduce its dependence on natural resources for economic growth.
Circularity in the built environment includes the elimination of waste and pollution, the conservation of products and materials in appropriate industrial value chains and the regeneration of the environment during the construction and operation of the built environment. Research on consumption-based emissions has revealed that "material efficiency interventions for buildings and infrastructure have the greatest impact on reducing emissions, followed by improved building use".
To truly achieve circularity in real estate, a two-pronged optimisation approach is needed:
Optimising resources in the built environment,
There are various sources of unrealised value in real estate, ranging from the use of space to the misuse of land and materials. For example, commercial leases generally prohibit subletting space to other tenants, but even if this were permitted, most tenants have security concerns and are unwilling to share workspace with other tenants outside of core working hours. The result is that the space is underused for more than 12 hours a day. As an example: a restaurant, even outside Covid period, is usually used at 10% maximum of its time (2 hours at noon, 4 hours in the evening). The same is true for an office building; the use of an office chair in relation to its maximum potential is about 15%. The worst example is probably the chair in a school or university. One must hardly reach 5% of the maximum time available (outside the Covid period of course).
Another reason for value dissipation is premature demolition, where divestment decisions are made based on the opportunity cost and economic life of an asset. Current real estate spaces are focused on single-use occupancy, with building plans and regulations preventing renovations or other changes to the property.
Similarly, the problem of land vacancy arises from the time required to tow, re-parcel and obtain approvals for new developments, particularly complex mixed-use developments on difficult urban brownfield sites.
It is common for developers to choose to hold land without planning permission in anticipation of rising prices but also because the construction industry can only deliver a limited amount of square metres per year.
Finally, much of the value is dissolved by the depreciation of materials. Due to industry standard depreciation rates used for accounting purposes, materials and components inevitably lose value faster on paper than in practice. Most buildings are not designed for deconstruction, which increases the cost of recovering reusable materials. These higher costs impact on profitability, which in turn affects resource and energy management systems, resulting in lower building performance.
Flexibility and adaptability
Uncertain of our future and for resilient development, circular design must be an integral part of the property industry. This circularity will be key to achieving these goals and new business models give asset owners the opportunity to optimise, reuse and adapt.
Flexibility is achieved by unlocking the potential of underused space in buildings while balancing the risks normally associated with short-term space. Adaptability considers the value of creating buildings that are resilient to both changing market conditions and social expectations by being able to adapt to alternative uses.
The repurposing of unused space achieves environmental and social objectives while providing better economic performance. Flexible and adaptable building designs could potentially extend the life of a building while making use of unused space. Buildings will need to be more malleable in terms of space planning, user flows and efficient user layout designs that drive organisational performance. They will need to be designed to allow for future expansion or extension and refitting for different uses.
After commissioning and occupation of the premises, it would be essential to evaluate and monitor the use of the buildings after occupation. Currently between 20% and 40% of the energy in buildings could be saved if the buildings were to function as planned and designed. A model called "performance procurement" adopts a "product as a service" approach, where people pay for performance, rather than a fixed amount, which puts pressure on building operators to manage buildings sustainably and efficiently.
The shift to a circular built environment implies a paradigm shift and a change in roles and business models for all active stakeholders. A decidedly collaborative approach is the only way to navigate the dependencies of government institutions, financial institutions and investors, the supply chain, construction and more, while improving performance along the way. The sequential, linear, siloed approach that aims to disconnect the prime contractor from the experience and useful inputs of the executing companies, users, maintenance companies,... in the act of designing the built environment is to be permanently banished. Collaborative and participative models of co-design are the models that should be implemented and that better respond to the philosophy of the circular economy with positive impacts.