Abu Dhabi real estate pivots to green

Environmental, social and governance (ESG) principles can become a way for Abu Dhabi real estate to differentiate its offerings at a global scale

Tapping into investor demand for sustainable property development could help Abu Dhabi propel its real estate sector to new heights, according to leading industry experts gathered at the Abu Dhabi Real Estate Roundtable.

“Globally, there is a growing call for ESG adoption and sustainable development,” said Anthony Taylor, senior executive officer at Masdar Green REIT, speaking during the high-level discussion organised by MEED and Mashreq on 28 September.

“Investors are increasingly looking for ‘responsible’ investment opportunities and evaluate companies based on specific ESG practices criteria. This highlights the rise in recognition of the climate crisis and how it must be addressed in the real estate industry.

“Now that there is the necessary awareness of the need for climate action, we must continue to take small steps that will have a big impact in the future,” said Taylor.

Demand for properties that meet high environmental standards is already being witnessed by stakeholders in the emirate.

“To give you an example; Siemens has a global mandate for their office buildings to meet a minimum LEED Gold certification and they chose to base their regional HQ in Masdar City, which is already home to one of the largest clusters of low carbon buildings in the world,” said Francisco Galan, director at Masdar Green REIT and head of development and portfolio management at Masdar City.

The German multinational’s regional headquarters in Masdar City is the first LEED Platinum-certified office building in Abu Dhabi and one of the first assets acquired by Masdar Green REIT in 2020.

“Major decisions such as headquarter location, highlights again the investor and tenant appetite for sustainable real estate options,” said Galan. “The Masdar Green REIT gives investors that option by investing in sustainable income-generating real estate assets, with a primary focus in Masdar City. This REIT also provides a vehicle through which third-party, sustainable developers can monetise their assets, attracting both real estate developers to Masdar City, and aspiring local and international sustainable investors,” said Galan.

The demand and supply for sustainable products is interlinked. Demand will drive the creation of the product, and vice versa.

“Unless there is change demanded for your product, you will continue to build things the same old way,” said a senior representative from a real estate development company. “It is indicative that people want a certain kind of lifestyle and will commit to projects that support this.”

In January 2022, Abu Dhabi developer Aldar announced The Sustainable City project, to be jointly developed with Diamond Developers at a value of AED1.8bn ($490m).

Spanning an area of 397,000 square-metres on Yas Island, the community will comprise of townhouses, apartments and retail spaces. A core part of the development is its sustainability factor. It will be powered by renewable energy, and incorporate practices around energy-efficiency, recycling, and indoor vertical farming.

Aldar is also the first real estate company in the Middle East and North Africa (Mena) to secure a sustainability-linked loan. In 2021, it signed a five-year, AED300m facility with HSBC that connects interest rates payable to achievement of sustainability targets.

According to stakeholders at the roundtable, the relatively young responsible investing landscape is evolving rapidly. There are numerous challenges around the harmonisation and consistency of data, measurement and maintaining high standards in the real estate industry, however.

Organisations need to start somewhere, and the considerations made today by backing and introducing these priorities in key projects and developments can help create incremental positive change for the future.

Even as demand for sustainable products rises, issues such as upgrading existing properties and a hesitancy to embrace the shift still linger.

“One of the initiatives we have recently introduced in another Dubai property portfolio has been ARC reporting on all assets to highlight, to both tenants and shareholders, some of the lower levels of sustainability these assets are currently achieving,” said Masdar REIT’s Taylor.  He explained that the motivation behind this initiative is to draw attention and emphasise the need for improvement at both the asset level and in some cases, in tenant behaviour as well.

Retrofitting is another tactic that the government and developers are turning towards as they seek to upgrade existing assets to higher standards.

In a recent announcement, Aldar has said it will invest AED25m ($6.8m) to energy retrofit 13 of its residential communities. The investment will offset 19,000 tonnes of carbon dioxide emissions annually and reduce utility consumption by AED12m across the communities.

READ: Retrofit can be a realistic route to net zero

Abu Dhabi’s Mubadala Investment Company has placed responsible investing at the core of its business. Against the backdrop of climate action, the energy transition and the role of business in society, it is continuing to integrate principles of investing responsibly into its decision making and asset management processes.

To help build fluency and institutionalise ESG, Mubadala has established a dedicated responsible investing unit to support its business along this journey.

Implementing change is not easy and it can be a challenge to get people on board with green investment strategies given this is a relatively new investment landscape.

Yet industry players state that partnerships can help achieve sustainable value creation while delivering tangible change and positive impact. A call to action is needed and banks can be seen supporting such efforts by confirming their position to finance projects that meet responsible investing criteria.