Some players in the Hungarian commercial property sector have made significant steps to transform the industry, but the majority have failed to do so. Property Forum asked Zsombor Barta, President of the Hungary Green Building Council (HuGBC) about the way the entire industry should act to reach net zero as adopted by the European Union.
The European Union’s Green Deal has great ambitions to reach climate goals by 2050. How about Hungary’s commercial real estate industry? Does it run at the needed speed to construct truly green buildings?
The European Union has set ambitious targets for greenhouse gas emission reduction. Net emissions should fall to 45% of their 1990 levels by 2030, and zero by 2050. This is indeed ambitious also for one of the biggest emitters, the real estate sector. The Hungarian commercial real estate sector adopted already a few energy efficiencies and sustainability-related measures, however, as in almost all EU countries, this is still not enough if we would like to reach the 2050 net zero goals.
The Hungarian commercial real estate sector is heavily embedded in the international context; therefore, its stakeholders will be not able to create alone a net zero sector, a highly systematic approach is needed to tackle the climate-related challenges. On the other hand, the Hungarian commercial real estate sector plays already a sort of a pioneering role, as many of the international best practices and sustainability approaches are adopted by them.
When it comes to green building certifications or ESG / EU Taxonomy, the commercial real estate sector is a frontrunner in its adaptation and interpretation. However, what is for sure is not enough what we are doing currently, - we must switch our entire sector towards a much more sustainable direction, and circularity and decarbonization must be the driving features, otherwise, the ambitious targets cannot be reached.
Zsombor Barta
President
Hungary Green Building Council (HuGBC)
Sustainable property development is the number one priority for some players in Hungary too, but not for all. Encouraging everyone concerned is an obvious task for lawmakers. What kind of incentives should be given to increase the number of companies in the industry that act this way?
I think, first of all, a very generic issue needs to be tackled, and this is again an international scope. Our entire economic pricing structure is currently in favour of non-sustainable solutions. Products with a lower environmental and social footprint are usually more expensive than the so-called conventional (or mass-produced) options, with a much larger environmental and social footprint. This applies to the food industry (where usually organic products are more expensive, although usually, they are causing fewer negative effects than conventional or mass productions) as well as for all the other sectors, - so also for the construction industry. Incentives (e.g., tax benefits, etc.) should be provided for products, which have significantly fewer negative impacts.
In my opinion, this applies not only to building manufacturing products but also to buildings. For example, brownfield developments must be favoured by law instead of greenfield developments. Existing building renewals and reconstruction must be an attractive option (for example with multiple incentives), then the new build. Circularity in the material used should be favoured instead of the use of “virgin” building materials.
But all this needs a legal background and an economically viable incentive system. We and the state should support and promote projects (and developments, etc.) which are less harmful and more beneficial for the future generation. But we are coming back to my original overall statement: all of this needs systematic thinking.
By the way, the EU’s new Taxonomy regulation is showing already this direction, as it sets on the one hand very ambitious targets and goals regarding sustainability (currently mainly energy efficiency) and on the other hand, the Taxonomy compliance provides the bases for financial incentives. We all hope that this will probably change the real estate stakeholders' view on sustainability and it pushes the sector also towards a more decarbonized and efficient future.
Green financing can make developers' job easier too. Do you expect Hungary’s national bank (MNB) to extend its green lending program and commercial banks to launch much more green project financing in 2023?
Green financing will be a very important instrument, especially if we want to push this sector to a more sustainable future. MNB played already a very important and pioneering role related to green finance. Recently, together with the Hungary Green Building Council, they adapted the EU Taxonomy regulation for the real estate sector to the Hungarian market, and MNB also issued a recommendation for the Hungarian commercial banks about EU Taxonomy.
The financial sector is always dynamically changing, - that sector reacts extremely fast to national and international changed circumstances, etc. Therefore, I am very sure that green financing will be attractive and an important instrument in the real estate sector soon. Financial products and investment strategies are also changing, and it is clear, that sustainable products are less risky, therefore, I am expecting a huge boost in sustainable financing. What we need is a transparent, third-party verified system, which assesses the compliances with international (sustainability) frameworks, - this is very important to minimize the so-called green-washing and to push the sector towards a real sustainable future.
CBRE’s latest European report says that the average asking rent of green office space is 6% higher than for buildings without green certificates. Is there any chance to widen this gap in the medium run in Hungary?
This report repeats the trends which were also summarized in World Green Building Council’s ‘The Business case for Green Buildings’ report from 2017. As investing (or renting) in green buildings means also (financial) risk mitigation, more value and stability, it is clear, that these buildings perform better than the average. We knew this, but in the past, in Hungary, not necessarily higher rents were characteristic for green certified assets, but higher quality, better energy efficiency and less vacancy.
CBRE’s recent report shows, however, that the trend for higher rents is also coming to our region, and this is of course very beneficial to shift the sector even more towards more sustainability. I think this trend will be more and more dominant in the future in Hungary, as green buildings are simply much more attractive products. Clients are already looking for green solutions, this applies also to their rented spaces. The recent energy crisis is also strengthening this trend, as green buildings should also be more energy efficient. Energy efficiency was probably not the most important issue for an office rental; however, this has been changing dramatically recently.
There is a WELL Working Group within your organization. What are the experiences since the group started its activity three years ago?
Healthy and productive internal spaces are more important than ever. Since the pandemic, this got even a bigger boost within the commercial real estate sector, I think everybody can understand that. More and more studies highlight the importance of health and well-being of the interior spaces as this is also highly connected with productivity and economical benefits. People are using the buildings; therefore, we need more emphasis on the building users and their health and well-being.
The HuGBC’s Well working group is one of the most active working groups within our organization, with regular and frequent meetings and members of national and international expertise. This working group channels new international trends and best practices, and plays a highly important role in education and knowledge transfer and in building a WELL community in Hungary. The members are also working on issues on a national level, which relates to the WELL certification scheme directly or indirectly.
Thanks to the WELL working group’s engagement, we have a significant growth of WELL certifications in Hungary, which is expectational in the CEE Region. Also, WELL workshops and education events are organized on regular basis; therefore, this community is also continuously growing. I think, thanks to this working group, we have one of the most active and successful WELL communities in the entire CEE region and the working group has already new plans for the future.
Does ESG help in transforming the property industry into a sustainable one in Hungary?
ESG is an important instrument if it comes to sustainability. There are also new and upcoming (EU) obligations to report about ESG-related topics – this is at least new for the real estate sector. Although there are several misconceptions about ESG on the market, I think it is important to highlight, that ESG is and will be a very important instrument if it comes to sustainability. There is no alternative to a sustainable future, there is no plan B rather than sustainability. Therefore, any instrument, which provides an important framework for sustainability elements, strategic thinking and implementation on various levels is highly important and welcomed, and it will help to transform the industry in Hungary.
One can love or hate ESG, but we shouldn’t forget, that after the first (ESG) steps are made and mastered, the whole process will become (hopefully) an integrative part of the daily operations and business. It is common, that the implementation of a new process is often connected with scepticism, but we need it sooner than later the switch towards sustainability, as there is no other option. Also, ESG criteria are not a static one, it evolves and changes, the EU is also in the process to develop new frameworks, therefore everybody needs to be up to date, and everybody needs to implement on certain levels sustainability thinking, goals, and indicators.
ESG is not a magical instrument and the company, or a project won’t become an immediately sustainable pioneer by adapting ESG frameworks, however, it can help and support the journey and make processes transparent and measurable. This alone is already a very important step towards sustainability.
The U.S. Green Building Council (USGBC) and the International WELL Building Institute (IWBI) have recently signed an agreement on much closer cooperation. What is the impact of that process on the property market in CEE?
The USGBC plays an important role within the international GBC world, and certifications from the US (like LEED and WELL) play historically an important role in the global green building market as well. If two of these stakeholders agree about closer cooperation, that means also benefits for the global green building community. Because of that, more collaboration, more studies, and more research are expected in the field of health and well-being, and this will be beneficial also for our region. Especially for us, for the HuGBC, as we have a very active WELL working group, with one member from the US, therefore if new impulses arise from this collaboration between the IWBI & USGBC then we can be sure, that our active working group will also channel in these new ideas, methods or researches.
