Making Europe’s Retail Real Estate Paris-proof

European Council of Shopping Places Column by Joost Koomen

Only six months have passed since our launch, and 2021 has already proven to be quite a busy year for the European Council of Shopping Places (ECSP). As we continue to build Europe’s only association dedicated to retail properties, the sector has continued to be faced with some serious challenges as the Covid-19 pandemic has continued to have such a significant impact. In response to the situation, the ECSP has published a position paper on the financial impact, calling on the relevant authorities to urgently consider introducing some effective measures to mitigate the situation for our sector as so many shopping places have been forced to close. This issue will remain a priority for us as well as for our members.

However, while the pandemic rages on, the climate crisis remains ever-present. Retail properties play an important role in reducing emissions and improved rebuilding efforts. We need to become Paris-proof and climate neutral by 2050. To that end, the European Union has set some ambitious targets for 2030, with many new regulations expected in the coming months, including revisions to the Energy Efficiency Directive, the Energy Performance of Buildings Directive, and the Renewable Energy Directive. Collectively, those proposals are expected to lead to a 55% reduction in greenhouse gas emissions from 1990 levels, which EU leaders proposed last year. Dubbed the “Fit for 55 Package”, they are part of the EU’s “Green Deal” and “Renovation Wave” strategies. Buildings are in the spotlight like never before, accounting for 40% of total EU energy consumption and 36% of total CO2 emissions – more than any other sector. Given the fact that 85-95% of today’s buildings will still be in use by 2050, it is no surprise that the EU believes change is urgently needed.

The EU would like to see the annual renovation rate double from 1% to 2%. Fortunately, retail property boasts a strong starting point of 4.4%. The paradox is that new ways of doing things require fresh investment and additional funding; meanwhile, the sector is struggling as a result of the pandemic. Under NextGenEU, the EU’s €750 billion stimulus program, up to 37% allocated to each member state must be spent on climate-related investments. However, early indications suggest that national strategies have fallen short of the European Commission’s expectations.

The ECSP will be closely monitoring how the proposals address what is known as the “split incentive problem” as well. This is related to cost recovery problems, for which there is either no incentive for landlords to invest in energy efficiency upgrades or for tenants to conserve energy. To significantly reduce emissions, landlords and tenants must work together. Any new mandatory requirements cannot be imposed on landlords alone. In addition, the ECSP supports new business models that make shopping centers future energy hubs. More recognition for existing market benchmarks and clarification of existing definitions that are confusing (e.g., carbon neutral vs. near-zero energy) will also be helpful. New legislation on the materials we use in construction are also forthcoming (cement, aluminum, steel).

The ECSP has already begun to get involved. Our Sustainability Working Group has joined forces with the Building Performance Institute Europe (BPIE), Europe’s leading independent think tank on building energy efficiency, to develop a zero-carbon vision and roadmap to 2050 that will be ready by the end of the year. This will be used to raise awareness and ensure that our views and concerns are heard by policymakers when they begin negotiations on the new climate proposals later this year. Watch this space.