Infrastructure innovations: Reimagining the cities of today in a greener future

Infrastructure innovations: Reimagining the cities of today in a greener future

The drive to make cities more sustainable involves refurbishing existing assets, building more sustainably, and reimagining urban areas that were developed amid the very different conditions, lifestyles and concerns of the 19th and 20th centuries. Achieving success is crucial to the campaign to tackle climate change, since real estate accounts for around 37% of global carbon emissions.

European cities dominate the top 20 most sustainable cities worldwide, as ranked by the Dutch engineeringZZ firm Arcadis’s 2022 Sustainable Cities Index.1 The region contributes 13 cities, including Zurich in 11th place, with Oslo topping the list, just ahead of Stockholm.

While that might seem like a cause for celebration, the European real-estate sector still faces considerable challenges in future-proofing its assets. That’s because so many of Europe’s buildings are old. Around 85% of the EU’s building stock was constructed before 2001, and between 85% and 95% of the properties that exist today will still be standing in 2050.2

A similar situation prevails across the Atlantic: the average age of a US commercial building at the end of 2022 was 53 years.3

These aging edifices were built at a time when energy efficiency was not the priority it is today. Yet, it is vital that we make our cities more sustainable, according to Zsolt Kohalmi, Global Head of Real Estate and Co-CEO, Pictet Alternative Advisors.

The debate about lowering carbon emissions has largely focused on transport and reducing carbon emissions from industry. However, real estate accounts for well over a third of carbon emissions globally, more than any other sector.
— Zsolt Kohalmi, Global Head of Real Estate and Co-CEO, Pictet Alternative Advisors.

The importance of living more sustainably in urban areas will only grow in the coming decades as people around the world continue to migrate from rural areas to towns and cities in search of greater economic prosperity. Europe’s level of urbanisation is expected to increase to approximately 84% by 2050,4 from around 76% in 2021.5 In the US, that figure is expected to exceed 87% by 2050, up from around 83% in 2015.6

play video

Retrofitting key to decarbonisation drive in advanced economies

Around 40% of a building’s CO2 emissions occur when it rises up. These are known as “embodied” emissions. The remaining “flow” emissions occur over its lifecycle, which could be as long as 90 years – and all of this CO2 stays in the air for up to 300 years.

Consequently, refurbishing wherever possible, rather than constructing anew, is one of the best ways to tackle the urgent need to reduce carbon emissions, and to improve real-estate sustainability over the long term in the developed economies, according to Zsolt.

Progress could be achieved relatively easily. Simply installing sensors and making greater use of artificial intelligence (AI) can make a big difference to the energy efficiency of buildings. Owners are able to measure where energy and cost savings could be made, and optimise living conditions for occupants.7 Innovations such as adding electric charging stations for e-bikes to a building can further help reduce an urban area’s carbon footprint.

The lack of modern, high-quality, “greener” buildings is giving rise to a “green premium” on sustainably certified assets. And that, in turn, is driving the charge to refurbish buildings and adopt new concepts to promote more sustainable patterns of life in urban areas. Research carried out for the economic consultants Deepki found that the value of more sustainably-built property can be as much as 25% higher than that of property built in an unsustainable manner. More than half of the European owners surveyed reported that rental yields had increased by between 16% and 25%, as tenants were willing to pay higher rents in return for lower utility bills.8


Converting offices makes sense

Repurposing office buildings for residential use has gained added urgency as a result of the COVID-19 pandemic, which accelerated the shift to remote working. Around 50% of multinationals intend to reduce their office space – typically by 10–20% in the next three years – as they reassess their needs, the real-estate agents Knight Frank said in June 2023.9

The fact that so much wealth is tied up in real estate provides another huge incentive to tackle the issue, given that real estate accounts for around two-thirds of global wealth.10

Reducing carbon emissions and limiting the creation of new stranded assets – properties that lose their value because they cannot meet energy-efficiency standards – can help preserve this wealth.

However, the ability to retrofit office buildings differs across regions, according to Zsolt.

Office buildings in Europe tend to be low rise and narrow, which allows natural light and air into all areas of an office block after it has been converted. The wide floorplates in the skyscrapers that are common in other parts of the globe, such as the US, by contrast, leave large, middle sections of these buildings with no natural light. Hence, by law, the majority of office buildings cannot be converted to residential use.
— Zsolt Kohalmi, Global Head of Real Estate and Co-CEO, Pictet Alternative Advisors.

Ways are being found to tackle the issue of natural light and air. 180 Water Street, for example, lies in the heart of Manhattan’s Financial District. The architects drilled a core into the centre of the building to allow in natural light and air, enabling the conversion of a 1970s block into a 29-storey tower with 580 rental apartments. Other office blocks in the US have been cut into the shape of an E. However, these solutions are complex and expensive.


Repurposing cities

Reimagining cities around their existing framework is another way to help them become more sustainable.

The concept of the “15-minute city” – where urban areas are composed of many neighbourhoods in which all major activities (work, rest and play) can be accessed within a quarter hour of home – is increasingly influential in the drive to greater urban sustainability.

Barcelona is creating districts encompassing several housing blocks, which only residents or delivery services can access by car. A speed limit of 10 kilometres an hour applies, and many streets are pedestrianised. Parking lots have been repurposed as parks, with trees, vegetables and flowers.

Meanwhile, the Dutch city of Utrecht has gone even further and is implementing a mobility plan that will allow citizens to access all essential services within 10 minutes by 2040. It involves developing four new city centres built around existing or yet-to-be-developed public transport junctions, with a public transport ring around the city.11,12 

Zurich committed to develop its transport system around public transit, rather than private cars, more than 40 years ago. It has also focused heavily on energy efficiency, renewable energy and more sustainable buildings. New housing and public buildings must comply with strict sustainable building regulations, while a smart building management system links the city’s heating, electricity and cooling infrastructure to maximise energy efficiency. 


Incentivising change

Large, sprawling cities may challenge the 15-minute city and other concepts. Changing office or residential buildings to mixed use also presents difficulties for operators and is not widely accepted by institutional investors as yet. Other barriers to the development of more sustainable cities include a lack of skilled professionals who can advise, for example, on the correct selection and installation of heat pumps.

More measures to encourage the repurposing of properties are required, given that it is not currently economically viable to modify many existing buildings. That could involve legislation mandating minimum energy-efficiency ratings. Some countries are already pressing ahead in this area, pushing up the “green premium”, or the added value of using a building (or other product or service) with low CO2 emissions.

Many European countries have already implemented legislation, and this will gradually become tighter over the next decade. But incentives are also required, says Zsolt.

"The authorities could adopt a ‘carrot’ as well as a ‘stick’ approach. Since simply adding a cost burden to companies may not work, tax breaks and other measures that encourage refurbishment are needed."

He cites the example of Geneva:

The city offers tax breaks to homeowners who make green improvements to existing homes, while building a new house – or even adding an extension to a home – does not carry any incentives. That approach is a good example of incentivising people.
— Zsolt Kohalmi, Global Head of Real Estate and Co-CEO, Pictet Alternative Advisors.

The development of cleaner cities involves the implementation of a variety of solutions and their application will vary across the world. But achieving this goal will bring enormous environmental benefits and should prove rewarding for investors.

The content of this article is not intended for persons who are citizens of, domiciled or resident in, or entities registered in a country or a jurisdiction in which its distribution, publication, provision or use would violate current laws and regulations. The information and data furnished in this content are disclosed for information purposes only and do not constitute a solicitation to subscribe to products or services of Pictet Wealth Management*.Pictet Wealth Management is not liable for the use, transmission or exploitation of the content of the site. Therefore, any form of reproduction, copying, disclosure, modi­fication and/or publication of the content is under the sole liability of the addressee of the content, and no liability whatsoever will be incurred by Pictet Wealth Management.All rights reserved. Copyright 2023*Pictet Wealth Management includes the entities mentioned in the report published under the following link:
Please confirm your profile
Please confirm your profile to continue
Confirm your selection
En cliquant sur "Continuer", vous acceptez d'être redirigé vers le site web local que vous avez sélectionné pour connaître les services disponibles dans votre région. Veuillez consulter les mentions légales pour connaître les exigences légales locales détaillées applicables à votre pays. Vous pouvez également poursuivre votre visite en cliquant sur le bouton "Annuler".

Bienvenue chez Pictet

Vous semblez vous trouver dans ce pays: {{CountryName}}. Souhaitez-vous modifier votre position?