Energy data and real estate investment: Financing and future-proofing your portfolio.

Continuing from our piece on the absolute importance of sustainability in real estate portfolios, we want to zero in on energy data and explain why it should be a key metric in your real estate sustainability strategy.

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In residential or commercial buildings, most of the emissions come from energy usage. That’s mostly electricity, but also heating, cooking gas, and even water (if you consider the energy used in pumping it all the way from reservoirs to those taps in kitchens and bathrooms). It bears repeating that buildings are responsible for a whopping 42% of emissions, according to Architecture2030. 

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So, what can you, as a stakeholder in real estate investments, do with energy data? A lot. We would even go so far as to say that it’s your best bet at optimising the environmental performance of your assets and bringing down emissions. 

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Sounds good? Buckle up, we’re diving in.

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The increasing role of energy data in real estate investments

In the context of real estate, ‘energy data’ refers to information related to a property's energy consumption and efficiency. As mentioned, this data can include power, heating, gas, and water consumption data that can be used to assess the energy and environmental performance of a building. It can also help you identify areas of improvement. 

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This data is important from a sustainability perspective as it helps calculate emissions. And that’s important because sustainable properties are simply more desirable.

Key energy metrics guiding property investments

Savvy investors are moving beyond traditional financial analyses and recognise that a building's energy performance directly impacts its long-term value and marketability. 

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Here are four key energy metrics that are relevant for real estate investments:

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1. Energy use intensity (EUI)

EUI, typically measured in kilowatt-hours per square foot per year (kWh/sq ft/yr) or British thermal units per square foot per year (BTU/sq ft/yr), provides a standardised way to compare the energy efficiency of different buildings.

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A lower EUI signifies a more energy-efficient property (reduced operating costs and a smaller environmental footprint). You can use EUI to assess a building's baseline energy performance, identify areas for work, and project potential energy savings from renovations or upgrades.

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2. Energy cost

Beyond overall energy consumption, the actual energy cost is a critical metric. You can analyse historical energy bills to understand the building's operational expenses and identify potential cost-saving opportunities. Fluctuations in energy prices and regional variations in utility rates should also be considered, as these factors can significantly impact a property's profitability.

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3. Time of use (TOU)

TOU data helps understand the consumption and cost of energy at different times of the day. TOU rates vary based on the time of day and season, reflecting peak and off-peak energy demand. You can use TOU data to optimise energy consumption patterns, shift energy-intensive activities to off-peak hours, and reduce costs.

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4. Carbon footprint (from energy usage)

The carbon footprint from a building's energy consumption is crucial for understanding environmental impact and ESG (environmental, governance, and social) reporting. It quantifies the greenhouse gas emissions generated from electricity, heating, and cooling, based on relevant emission factors. 

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Impact on property valuation and rent

Energy considerations drive property in the 21st century, where consumers (just like investors) are becoming more aware of climate change. Investment properties that normally generate income from rent have the potential to enjoy full occupancy and perhaps even higher rent, as the demand for such buildings goes up. 

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In a survey in Germany, four out of 10 tenants said it’s essential for them to ensure that the property they’re renting is energy-efficient. Similarly, energy efficiency can also increase the value of a property. According to a report by Domain, an Australian rental marketplace, the difference in value between a non-energy-efficient and energy-efficient property can be AUD 112,000 (roughly EUR 64,700). 

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If, as an investor, you want your real estate assets to do well financially and return as much capital gain as possible, you have to look at the energy numbers. Ignore those numbers, and your returns might be as flaky as a Danish pastry.

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The question of compliance

Besides the financial advantages of energy-efficient properties, investors may also need to comply with regulations that require the same thing. 

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The European Union (EU) has implemented frameworks and directives to reduce energy consumption and carbon emissions. Energy data is a critical component of adherence to those regulations.

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For instance, the Energy Efficiency Directive (EED) mandates that large enterprises conduct regular energy audits, requiring meticulous data collection and analysis to demonstrate compliance. 

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Similarly, the Energy Performance of Buildings Directive (EPBD) sets minimum energy performance requirements for buildings, including energy ratings. It requires the generation and maintenance of Energy Performance Certificates (EPCs) that are based on detailed energy data.

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A revised version of the EPBD came into effect in all EU countries on 28 May 2024, which contributes to the objective of reducing GHG emissions by at least 60% in the building sector by 2030 compared to 2015, and achieving a decarbonised, zero-emission building stock by 2050.

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All these directives drive the need for accurate and consistent energy data collection, which includes monitoring energy consumption, identifying areas of inefficiency, and documenting improvements. 

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Failure to comply with these regulations can result in substantial penalties and reputational damage. It goes without saying that the ability to collect, analyse, and report energy data accurately is not just a best practice, but a legal imperative for real estate investors, especially in the EU. 

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Energy efficiency and access to real estate financing

There’s another reason why energy efficiency is important for real estate investments, and that’s financing. For firms that may be looking to take out loans to invest in properties, energy efficiency may be a requirement. 

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Financial institutions, particularly banks, are beginning to impose stricter sustainability requirements as part of their lending criteria. This is because energy-inefficient properties pose a higher risk of depreciation and increased operational costs. Translation? High bills, low value, and a big fat “no” from the bank.

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For example, in the UK, lenders are taking into account EPC ratings to determine affordability when lending money for buying or mortgaging a home. This means that a house with a higher EPC rating, like A or B, may result in a higher lending cap. 

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The growing market for green loans and bonds further amplifies this trend. These financial instruments, specifically designed to fund environmentally sustainable projects, are crucial in developing, retrofitting, and buying energy-efficient properties. 

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Green bonds, for instance, allow developers and property owners to raise capital for projects that meet stringent environmental standards. In contrast, green loans offer preferential interest rates and terms for investments in energy-saving technologies and building upgrades.

Use energy data to secure real estate investments

They say data is king, but in the case of real estate investments, energy data is the king of kings. Here’s how you can use this data strategically for a variety of purposes that ultimately improve the financial performance of assets under your ownership:

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Optimising operational efficiency

• Add smart building technologies and energy management systems to monitor and control energy consumption in real-time
• Use energy data to identify and address inefficiencies, reduce operating costs, and improve tenant comfort
• Track the ROI of energy-saving investments

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Due diligence and risk assessment

• Analyse EUI to identify properties with lower operating costs and higher potential for energy savings
• Evaluate historical energy cost data to project future expenses and assess the impact of energy price fluctuations
• Incorporate carbon footprint data into risk assessments to understand potential exposure to environmental regulations and market demand for sustainable properties

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Increasing property value and marketability

• Highlight properties with high EPC ratings or green building certifications (e.g., LEED, BREEAM) to attract environmentally conscious tenants and buyers
• Implement energy-efficient upgrades and showcase the resulting improvements in EUI and energy cost savings

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Securing green financing

• Use energy data to qualify for green mortgages, bonds, and other sustainable financing options
• Provide detailed energy performance reports to demonstrate the environmental benefits of the investment

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Compliance and future-proofing

• Ensure properties comply with current and future energy efficiency regulations
• Utilise energy data to track and document compliance, minimising the risk of penalties
• Invest in energy-efficient technologies and building upgrades to future-proof properties against evolving energy standards

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Where does comundo fit in all of this?

comundo is a solution that helps you collect energy data for your portfolio of properties. But it can do you one better – make sense of the data. Not only does the solution automate the collection of energy consumption, but it also calculates the most accurate carbon emissions. 

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Whether you’re just analysing data for strategy or compiling an ESG report for authorities, comundo gives you access to the information you need to make the right decisions. 

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Embrace the financial benefits of energy-efficient real estate investments

The evidence is clear: energy-efficient buildings represent the optimal choice for real estate investments. Such properties address issues like increasing energy costs, stringent regulatory demands, and growing environmental awareness. 

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Energy data is at the core of making your portfolio energy-efficient, and comundo can help you do just that.

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