Fidelity International on how to make carbon reduction goals a reality

This article is sponsored by Fidelity International.

The era of sustainable real estate is upon us, with both landlords and tenants increasingly aware of their role in achieving energy efficiency targets. “With strong alignment from all parties, in commercial real estate we now talk about the new joint venture between tenants and landlords,” explains Christopher Lyon Lynch, real estate associate director at Fidelity International. 

In this collaboration, technology plays a pivotal role, providing innovative solutions to turn more energy efficient buildings into a reality.

How is real estate’s move toward sustainability changing the relationship between landlords and tenants?

Real estate is at the heart of the race to net-zero carbon and achieving Paris Climate Agreement goals. We at Fidelity decided a couple of years ago to launch a net-zero carbon pathway. It was a corporate strategy. 

And, specifically for our direct real estate business, we were very keen to build and propose a net-zero carbon roadmap across all the countries and properties – including logistics, retail and “other” assets – that we invest in. Meanwhile, energy efficiency and highly rated green buildings are now a key focus of tenant demand, as many corporates are also targeting net-zero carbon and looking to make savings on energy costs that have spiked over the last 18 months as a result of the Russia-Ukraine war.

In this environment, there’s been a change in the relationship between tenants and landlords. Around 10 years ago, their relationship was focused on the rent and the length of the lease. Today we must build a completely new relationship with tenants, keeping in mind non-financial criteria such as greenhouse gas emissions, particularly carbon dioxide, and reducing waste. These have become crucial points for tenants. 

When they sign a lease with us, they want to have a clearer view on these aspects over the next nine years, which is the typical length of a lease in France and other parts of Europe. In this scenario, we are not just investment managers but also asset managers who support the tenant by operating the properties.

How is technology facilitating this new relationship between tenants and landlords?

Considering that we have between 200-300 tenants across the pan-European region, there is an advantage in using technology to improve the relationship with them. Every year, for instance, we send tenants a specific digital survey which, alongside their thoughts on sustainability issues, asks if they are happy with the relationship with the landlord and how we can improve it. 

We have also changed the way we communicate with tenants by providing access to a digital data room (or other data platform) to share all the data available to monitor buildings in the most efficient way, including capex plans and refurbishment programs. 

It’s an open book between the landlord and tenant, disclosing all relevant documentation that will support monitoring of the property, such as technical manuals or reports on aspects of the property’s ESG profile.

What are some ways in which digital data rooms can support real estate managers throughout the property life cycle?

From the acquisition process through refurbishment, then re-letting and ultimately disposal, these platforms allow us to track the data at different stages of the property’s use. 

Obviously, the analysis of the previous year will support the choice of the refurbishment program. Afterward, when the tenant is onboarded, full access to the property technical data room is granted. 

This supports a good and efficient handover to the property manager and can help to achieve energy savings and reduce carbon emissions. In light of the increasing volumes of data extracted from properties, in the future we are likely to see the emergence of smart digital data platforms, able to process the data and identify key highlights for tenants and property managers.

 The digital platform is also useful when selling the building, allowing the new owner to get the full picture of any capex deployed on the property. 

This is particularly important for impact investments, where purchasers will have to clearly understand the repositioning program, the energy efficiency credentials and the future net-zero carbon pathway of the asset.

What other technology solutions are relevant to support a more sustainable use and monitoring of properties today?

The basics today are the BMS systems, smart meters and LED lighting. All kinds of property, whether retail, logistics or offices, have to consider these three types of technology solutions. 

BMS systems – the ‘brain’ of a large office property, a computer that can monitor everything from HVAC systems to lights – are now much more advanced. Some of them can utilize AI to help improve energy efficiency by anticipating the use and the rate of occupancy on any given day, or even access weather forecasts and adjust heating or air conditioning accordingly. 

Smart metering systems also allow us to monitor energy consumption floor-by-floor and can help to support ongoing maintenance programs. And today, LED lighting is basically mandatory. As soon as you start your refurbishment program, 100 percent of the lights need to be LED. 

One of the marketing tools that we created during covid and which, surprisingly, remains highly relevant to support the letting activities and the future use of the property, is virtual visits. 

When a tenant is onboarded, for instance, we usually use this tool to prepare and anticipate all the fit-out works and the lay-out and maintenance of the office floors. 

In the past, there was often a huge waste of materials, sometimes because the color used in fit-out works was not the color of the brand for the new tenant, for instance. 

So, while this specific virtual tool does not have a direct, immediate impact on the carbon emissions, it definitely helps us to be smarter, more efficient and to avoid potential waste when renovating a property. 

How can property managers utilize technology in order to meet energy efficiency targets across their entire portfolio in different jurisdictions?  

We are working with a leading pan-European ESG data provider for the real estate sector to collect data on all properties at a pan-European level. On a daily basis, the platform collects all the information registered by smart meters for properties. 

Then, through one specific dashboard, we can monitor the entire portfolio’s energy consumption on a regular basis. This gives a clear picture of the energy consumption and where we must improve efficiency on the road to net-zero carbon.

In the very near future, we will be able to produce reports for clients through this platform. And, if we have any questions on energy consumption for a particular property or combinations of properties, our analysts will be able to answer them thanks to this data platform. Such data can be invaluable for managing the portfolio. 

Without such technology, it would be impossible to reach energy efficiency targets – we wouldn’t even know how many kilowatts of electricity we had used last year. 

If you want to create a benchmark, fix the reference [point] and reach a specific target for energy reduction, you must monitor the data. Technology provides a huge amount of data, but a key point is how to use it and how to interpret it so we can take the right steps toward our target. 

Meeting efficiency regulations through tech

In France, the so-called ‘tertiary’ decree, applicable since 2019 to commercial buildings with a surface greater than 1,000 square meters (10,764 square feet), imposes energy consumption reductions in several stages: 40 percent by 2030, 50 percent by 2040 and 60 percent by 2050.

The newly-renovated Le Prélude – an office building located five miles from the center of Paris, spanning over 100,000 square foot and managed by Fidelity International – illustrates that, far from being ambitious, the targets set by this decree in 2030 can be met thanks to technology, immediately after works completion.

Before its renovation, the building was fully let to a single large corporate tenant. In 2021, the company vacated the property for a smaller office, in a move that shows how occupiers are reducing office space to embrace flexible and working from home patterns following the pandemic.

“It is a 15-year property, so this was a great opportunity for us to completely re-think and reposition it. We have invested more than €1,000 per square meter, 100 percent driven by energy efficiency,” Fidelity’s Christopher Lyon Lynch says. Technology improvements – including LED lights, a new building management system, HVAC equipment, and a heat pump – have allowed Fidelity to reduce energy consumption on the property by 60 percent based on studies at the design stage, Lyon Lynch says.

On top of that, six months before the completion of the refurbishment, Le Prélude was already fully re-let, which shows the increasing demand for sustainable buildings from today’s occupiers. “At Fidelity, we are convinced that an office property is not liquid anymore on the letting market if it is not best-in-class in terms of energy efficiency. The energy savings will help in the liquidity and the profitability of the operation,” Lyon Lynch says.