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How ESG factors are driving the MENA real estate market

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Businesses, governments, and investors are increasingly prioritising environmental, social, and governmental factors when making investment decisions.

A recent Knight Frank survey found that in the Middle East, ESG considerations are now a top priority for real estate investors.

When it comes to ESG factors, environmental aspects have traditionally received the most attention. Last year, global carbon emissions fell by a record-breaking 5.8% yet at the same time, 2020 also saw the highest concentration of carbon in the atmosphere to date. As the global economy rebounds post-pandemic, C02 emissions worldwide are forecasted to grow by 4.7% over the next year.

With temperatures in Kuwait reaching a record-high of 53 degrees last summer and sea levels rising in many Middle Eastern countries, environmental factors pose significant threats to the region. Where real estate is concerned, climate change incurs high costs and both physical and transitional risks.

The building and construction sectors account for 40% of global carbon emissions and one third of the world’s energy consumption. With global building stock projected to double by 2050, the demand for energy and construction is also set to continue rising.

Social and governmental factors are also gaining importance in real estate development and investment choices. In the Middle East, governments are increasingly introducing regulatory guidelines and state initiatives to facilitate the sustainable growth of the sector.

The link between climate change and policy

In 2017, the UAE recognised climate change as a key policy, approving the National Climate Change Plan (2017-2050) which focusses on three pillars: mitigation, adaptation, and opportunity.

“Currently, around 50% of energy in the UAE goes into cooling and air conditioning systems. As temperatures rise, we require more cooling. This needs to be from sustainable sources” Qais Bader Al Suwaidi, Director of Climate Change at the Ministry of Climate Change & Environment said in a recent Savills panel discussion.

Environmental factors are now driving policy change in the region, for example, the UAE recently pledged to reduce emissions by 25% by 2030 to mitigate the effects of climate change.

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Expo 2020: Promoting sustainability

This trend is also reflected in Expo 2020 which aims to encourage global interaction around the theme of sustainability via a specific sustainability pavilion named Terra. Once the event concludes, the site will be repurposed into a mixed-use development comprising commercial, residential, leisure and hospitality spaces, known as District 2020.

“80% of the Expo 2020 buildings will be repurposed into District 2020 … The site has received glowing recognition from CEEQUAL, becoming the first project in the Middle East to be rated excellent,” Nadimeh Mehra, Vice President, District 2020 said.

Considering social factors, District 2020 aims to provide residents with a good work-life balance featuring multiple leisure spaces such as bike and running tracks, parks, and restaurants.

“We have built a public realm that engages communities to come together. The commercial ecosystem is centred around the ability of residents to collaborate with one another, so our buildings allow for ease of interaction,” Mehra added.

Private sector – Brookfield

ESG and sustainability considerations are also gaining importance amongst real estate developers in the private sector.

In the region, a growing number of LEED platinum rated buildings have emerged over recent years as companies strive to achieve the highest rating that can be given by the US Green Building Council.

“It is increasingly important for developers to align with a globally recognised building system, so that [the industry] can work towards a global ranking,” Rob Devereux, CEO of ICD Brookfield Place, a new lifestyle and business development in Dubai, said.

Seeking to achieve a high sustainability rating, the construction of the development will use 48% less water than the industry baseline and will be made up of 30% recycled materials. Regarding social factors, ICD Brookfield Place features over 4 acres of green space, arts and events programs, and air quality that is 80% above national standards, Devereux added.

Photo credit: https://www.expo2020dubai.com/en/understanding-expo/participants/special-pavilions/sustainability

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