With the Annual Hotel Conference upon us – with a its theme of “Change for Good” – and with COP26 only just concluded, not only is the hospitality sector still rebuilding from the challenges of the last two years, it is also grappling with significant environmental challenges.
A call for action on climate change for the sector ought to have existing hotel stock in its sights. The Principles of a Circular Economy are key against the UK Green Building Council statistic that 80% of buildings likely to exist in 2050 have already been built. Hotel investors therefore have a considerable role to play in setting the climate change agenda for the sector.
Positive change in the property industry comes from building users, designers and operators as well as investors, but it is in collaborative effort that most is to be gained.
How do investors in ageing hotel buildings work towards Net Zero Carbon without blowing project budgets? During pre-acquisition due diligence at RLB UK we are often asked “how much will Net Zero Carbon cost me?”. This is really a multi layered question as the simplicity of the phrase “Net Zero Carbon” obscures the technical complexities and interoperable nature of hotel metrics. There is no single intervention to achieve Net Zero Carbon and each possible intervention will have a number of associated value benefits. Understanding the cost in isolation of value is meaningless. It is essential that Design teams tune into value metrics to help their investor-clients navigate the Net Zero Carbon journey – so, what are the metrics?
1 – Customer Engagement
Net Zero Carbon strategies can be used to improve RevPAR (Revenue per available room) through customer engagement and alignment with the brand. Customers are increasingly savvy and demand brand and sustainability credentials that align with their own world view.
In an industry often considered to result in superfluous carbon footprint, travellers are increasingly looking beyond instagrammable “greenwash” interventions. Carbon offset may form part of the Net Zero Carbon strategy but this may be considered to be “gaming” the system by truly engaged customers. So having a solid Net Zero Carbon narrative is key.
2 – Asset Stranding
Increasingly governments are expected to intervene to drive a Net Zero Carbon agenda. This can be seen in the UK through the MEES (Minimum Energy Efficiency Standard) regulations affecting leasehold properties, preventing leases being granted on those properties with a low EPC rating of F or G, and consultations underway on progressive steps to increase this threshold. As governments look to achieve climate pledges, other property interventions must be increasingly likely.
Asset stranding is likely to be through a combination of investor demand and policy. Design teams should ensure they work with investors to consider the likely environmental expectations over the life of ownership to prevent future asset stranding.
3 – Operational Cost
Net Zero Carbon interventions have the ability to reduce operational costs. Working with operational teams to quantify the likely benefit may improve value at the outset.
4 – Environmental, Social and Corporate Governance requirements
Most investors now have ESG policies and there are a number of certification and accreditation regimes used for portfolios, operations or projects that support these policies. From GRESB to Well Certified, through to more sector specific accreditations such as Green Globe or Earth Check. The sustainability policies of investors need to be understood and the cost impact of any accreditations required to satisfy those policies. Project teams also need to be mindful of the Social and Governance policies of investors as these may impact on project processes and cost as well.
Navigating the Net Zero Carbon journey
Acquiring a hotel asset with the intention of taking it on a Net Zero Carbon journey can be a daunting prospect. However, this journey can be broken down into three simple steps:
Firstly: pre-acquisition due diligence should consider the environmental performance of an asset. For longer term value preservation understanding the starting point should be as important as condition assessments. Sustainability should be an integral part of the technical due diligence process.
Secondly: have a framework to consider the Net Zero Carbon journey post acquisition. Recognise that pre-acquisition work is unlikely to solve all the problems or find all the answers. Have flexibility in planning and test financial sensitivity to possible outcomes.
And finally: navigate the Net Zero Carbon route based on cost and value metrics.
The hotel sector is undoubtedly facing up to its environmental obligations, and hotel investors are recognising that “Change for Good” on a Net Zero Carbon journey can mean value upsides as well as positive change for the planet. And the role of the Design teams in providing a road map that is balanced and rounded will be essential for this journey.
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