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Decarbonisation Pathways for Real Estate: Avoiding Stranded Assets with OPTIMUSE Software

As the impacts of climate change continue to worsen, reducing carbon emissions has become an increasingly urgent priority for businesses across industries. The real estate sector, which accounts for a significant share of global greenhouse gas emissions, is vital in mitigating its environmental impact. To this end, real estate professionals are exploring decarbonisation paths - a set of strategies and actions designed to reduce the carbon footprint of buildings and the broader real estate industry.

Creating decarbonisation paths is not only important for the environment, it is also crucial for maintaining the economic viability of real estate. Accordingly, it is essential to prevent real estate from becoming a stranded asset. But what does that mean?

Risk of stranded assets and the link to decarbonisation paths

A stranded asset is a property or asset that risks losing value due to compliance with future regulations, climate risks and lower demand for leasing agreements. Energy-inefficient properties or fossil fuel-dependent real estate assets will be considered risk investments. As the world shifts to a low-carbon economy, these assets become less desirable and lose value, leaving owners and investors with difficult-to-sell or repurpose stranded assets. This results in a vital need to renovate properties to reduce their negative environmental impact and to avoid the risk of stranded assets.

The objective of decarbonization paths for real estate is to mitigate carbon emissions and lower the energy demand attributed to buildings and real estate portfolios economically. By implementing energy efficiency measures, switching to renewable energy sources and adopting sustainable building practices, property owners and investors can future-proof their assets to avoid the risk of stranded assets. Properties with a lower carbon footprint will be more attractive to tenants, buyers and investors and retain their value as the market shifts towards low-carbon assets.

Why is it so challenging to create decarbonisation paths?

One of the biggest challenges in developing decarbonisation paths for real estate is the complexity of a diverse asset portfolio. For example, the real estate sector is characterised by various building types, sizes, ages, ownership structures, and thermal characteristics, such as different heating systems. In addition, each building may have different energy consumption patterns, emission profiles and retrofit requirements. Therefore, developing effective decarbonisation strategies that can be applied to a diverse property portfolio is costly, time intensive and requires a tailored approach.

To overcome this challenge, property owners and operators must comprehensively assess their property stock to identify the primary sources of emissions and prioritise decarbonisation efforts accordingly. This complicated analysis may involve collecting and reviewing a range of building data (such as year of construction, heating type, energy consumption, etc.) and assessing the efficiency of building systems and equipment. The aim is to get a general sense of which buildings might be at risk and where a more in-depth assessment should be conducted.

Once the analysis is complete, owners and operators can develop a decarbonisation strategy that considers the specific characteristics of each building in their portfolio.

Effective coordination and cooperation between stakeholders (e.g. building owners, engineers etc.) are also crucial for successfully implementing decarbonisation strategies. For example, building owners and operators must work closely with tenants, contractors and other stakeholders to ensure that the decarbonisation plan is feasible, cost-effective and acceptable to all parties. In addition, owners and operators may need to work with financial institutions, policymakers and other external stakeholders to secure funding, regulatory support and other resources required to implement the decarbonisation plan.

The acute challenge of larger portfolios is the diverse portfolio

Assessing and developing decarbonisation paths for real estate portfolios is already a complex task, but this complexity is further compounded when dealing with a diverse range of building types. When managing an extensive portfolio with different building types, stakeholders must create multiple decarbonisation paths, each tailored to the unique energy requirements and characteristics of each building type.

The assessment of such portfolios requires careful consideration of numerous factors, such as costs, emissions, subsidies, rental period, budget, property location, inflation, CO2 tax, and more. Additionally, the lack of a standardized methodology for assessing the carbon footprint of real estate portfolios adds to the complexity of the task, especially when dealing with different building types.

Limited budgets are another significant challenge, and stakeholders must prioritize their investments to achieve maximum carbon reduction. The rapidly changing technological and regulatory landscape further complicates matters, as stakeholders must consider the long-term impact of their investments while keeping pace with emerging technologies and shifting regulatory requirements.

To overcome these challenges and make data-driven investment decisions, stakeholders need innovative solutions and advanced technologies, such as machine learning and artificial intelligence. These technologies can help real estate professionals analyze and optimize the energy performance of their properties, identify areas for improvement, and make informed investment decisions that align with their sustainability objectives.

Overall, with the multitude of decarbonisation paths required for different building types, along with the diverse range of factors that must be considered, it is clear that large real estate portfolios present acute challenges in terms of decarbonisation.

Software as a key driver of innovation

Access to new technologies and software solutions is crucial for stakeholders to overcome the challenges of developing decarbonisation paths for different real estate portfolios, to reduce risks and increase value. Software tools can provide a standardised methodology for assessing real estate portfolios.

In addition, software tools allow stakeholders to simulate the impact of different economically optimised decarbonisation strategies and prioritise investments based on their potential carbon reduction impact. This enables stakeholders to make data-driven investment decisions at optimal costs. Using software tools also reduces the cost and time required to assess and implement decarbonisation strategies, making them an economically viable solution. Therefore, software tools are crucial in achieving stakeholders' decarbonisation goals.

With the OPTIMUSE software solution, you can access cutting-edge technology that leverages AI and machine learning to streamline the decarbonisation process. Our software creates digital twins of your buildings, allowing for a more accurate carbon footprint assessment. Our machine learning algorithms enable us to optimize the timing of remediation efforts based on your budget and CRREM (Carbon Risk Real Estate Monitor) data. Our software also provides seamless data integration, allowing for a comprehensive analysis of your entire property portfolio. With OPTIMUSE, you can confidently explore various cost-effective decarbonisation paths, focusing your investments on the projects that will have the most significant impact on energy efficiency and the environment. You can trust OPTIMUSE to help you make data-driven decisions that align with your organization's sustainability goals while maximizing your return on investment.

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