It’s encouraging to see policymakers commit to ‘Net Zero 2050’. However, the road ahead will be challenging, not least in the real estate sector. In Europe, for example, greenhouse gas emissions from buildings need to drop 60% from 1990 levels by 2030. This clearly represents a major change for the sector – but dig down into the detail and the task begins to look almost Herculean. And it won’t be accomplished in time without a step change in response and radical collaboration from all actors in the sector.

The challenge ahead

By industry numbers, Europe’s built environment currently produces around 36% of the region’s greenhouse gas emissions. The European Commission’s (EC) agreed target is to reduce emissions from buildings by 60% by 2030. This target reflects the sector’s necessary contribution to keeping us within the Paris goal of just a 1.5 degree rise in global temperatures. The level of change is unprecedented.

Some of the necessary reduction will come from the decarbonisation of the electricity grid and onsite renewables. However, an estimated 85-95% of existing buildings will still be standing in 2050. The most meaningful emissions reductions will therefore have to come from ‘deep retrofit’ – holistic upgrades to existing fabric and building services to deliver significantly improved efficiency. About 85% of the region’s buildings were constructed before 2001. This exercise – termed the ‘Renovation Wave’ – will therefore be a huge undertaking for the industry and supply chains in the decades to come.

One major requirement is to decarbonise heat, which will primarily be achieved by replacing fossil-fuel heating with heat pumps. It's forecast this will result in a 400% increase in heat-pump sales over the next 30 years. Which raises the questions: can supply chains scale up quickly enough? And do we have the required skills to meet this demand? To get a sense of the size of the overall challenge, consider that, currently, only 11% of Europe’s buildings are refurbished annually. Furthermore, only 0.2% of this refurbishment cuts emissions in a meaningful way. So, at the current rate, decarbonisation could take centuries.

A refurbishment that decarbonises a building meaningfully can have a capital expenditure premium of 10-20% (and sometimes more) compared to a conventional refurbishment. In our experience, ‘future-fit’, low-carbon assets appeal to occupiers and investors both in commercial and residential sectors. For some buildings, firms can therefore easily justify the extra outlay on the basis that the improved specification will attract a premium and protect against obsolescence. But the extra cost for deep retrofit is unlikely to be commercially viable for a significant subset of buildings – so called ‘economic obsolescence’ . This is especially true in the absence of a policy-mix that incentivises the necessary level of action on a level playing field.

It will require around EUR275 billion of additional investment each year to achieve the 2030 target

Mind the gap

The sustainable, energy-efficient renovation of buildings faces a large investment gap. According to the EC, it will require around EUR275 billion of additional investment each year to achieve the 2030 target, with the lion’s share spent on major improvements in the energy efficiency of buildings. Globally, the sector will need to spend an additional US$3.5 trillion per year on improving physical assets to meet ‘Net Zero by 2050’.  As noted, some of this will come from asset owners and lenders where there is a clear investment case for deep retrofit. However, a substantial portion will necessarily come through the European budget to incentivise action for the worst performing buildings. Which begs another question: can sufficient investment be deployed quickly enough at scale to achieve this outcome?

Embodied carbon

When it comes to buildings’ greenhouse gas emissions, there is still a large elephant in the room – ‘embodied’ carbon. That is, all the emissions created by extracting, manufacturing and transporting materials during the construction phase. It's estimated that embodied carbon can account for 60-70% of a building’s emissions over its lifespan. True, several European countries are seeking to address embodied carbon. Nonetheless, it remains largely unmeasured and unregulated. Clearly, a consequence of the Renovation Wave will be increased embodied carbon as we invest in existing buildings. It’s therefore important that there’s a coordinated approach from industry and policymakers to shift the emphasis to the measurement and reduction of whole-life carbon, not just the operational phase.


The low-carbon transition involves the electrification of almost everything – from heating to transport. Even with vastly increased renewables capacity and storage, if we electrify the majority of buildings and most of our transport in the coming decades, there will not be enough zero-carbon electricity to go around without unprecedented improvements in the energy efficiency of buildings.

According to the UK Green Building Council, the zero-carbon electricity supply will increase 140% by 2050. To match this level, energy demand must fall 60%. The challenges are similar across Europe, with variations depending on the existing grid supply mix.

Final thoughts…

When we combine these issues, it’s clear there’s an almost overwhelming challenge ahead. But the cost of inaction is also enormous. Not just in financial terms (we estimate more than 80% in net book value and 75% of floor area for global real estate is at high risk from the physical impacts of climate change), but also in human terms.  Action by policymakers, developers and investors is crucial. The IPCC has already warned that any further delay means we will miss the rapidly closing window of opportunity to secure a liveable and sustainable future for all.

Note, this article has already been published in German in Swiss publication, Finanz und Wirtschaft