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Meeting of minds to boost European office landlords' push for sustainable future

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Meeting of minds to boost European office landlords' push for sustainable future

A sustainability and innovation thinktank established in December by six of Europe's major office landlords will have a "multiplier effect" on the resources each company is committing to the initiative, while helping to spread ideas that could transform the region's office market in the years ahead, said Olivier Elamine, CEO of participating company alstria office REIT-AG.

The thinktank comprises Germany's Alstria, the U.K.'s Great Portland Estates Plc, Italy's COIMA RES S.p.A. SIIQ, Spain's Inmobiliaria Colonial SA, the Netherlands' NSI NV and France's Gecina, whose CEO, Meka Brunel, first proposed the idea to Elamine. The companies, which have a combined market capitalization about €20 billion, according to S&P Global Market Intelligence, are "thought leaders within their own country," Elamine said.

"The target of participating in this thinktank is mainly to benefit from shared experience with the others in order to improve the way we design buildings in the future," said Elamine. "The changes that our tenants face in Germany are very similar to the changes that tenants are facing in Paris, Madrid, London, Amsterdam or Milan and therefore, if somebody has found an interesting solution in one of those cities, it probably makes sense for us to try to replicate that and do it in Germany and vice-versa."

The group will meet once every quarter following a meeting in March, according to Elamine. One of their first projects is to quantify and identify the evolving behavior of tenants in each of the participants' markets and test the basic assumption that tenants' needs are changing in a similar way across the continent. "By the end of next year, we should have a number of concrete results and food for thought that we can probably share then with the market," Elamine said.

The creation of the thinktank comes as investor interest in environmentally conscientious companies is on the rise. Up to 97% of European investors and 85% of U.S. investors plan to boost their climate-related and low-carbon investments, according to a 2017 report commissioned by HSBC. Asset allocation in the broader environment, social and governance sector has also been growing, particularly in Europe, where about 85% of investors said they incorporated some degree of ESG analysis into their investment approach, versus 49% in the U.S., according to a survey published by RBC Global Asset Management in October 2017.

Elamine said that, from Alstria's perspective, participation in the thinktank has little to do with attracting such investment and is more about meeting the future demands of the German office market. "I meet between 200 and 500 investors every year; [I might] get five of them who ask about sustainability at the maximum on any given year," he said. "And our feeling is that, yes, investors are talking more and more about ESG, but most of them ... haven't yet made the effort to invest the time and energy to actually understand what this means." ESG was still just "a tick-box exercise" for many investors, he noted.

Christopher Spearing, a real estate equity analyst at Canaccord Genuity who covers Great Portland Estates, warned that initiatives such as the thinktank can be difficult for publicly traded companies to justify from an investment standpoint. "The danger of being a listed company is that there is an increasing emphasis on short-term measures, and a lot of these initiatives are, I suspect, likely to impact numbers negatively to begin with but positively potentially in the longer term," he said.

Until real estate companies have firm evidence that more sustainable design delivers higher profits, there will continue to be "a lot of talk [in property firms] about sustainability at a high level," but a "disconnect" with what they actually deliver in their buildings, according to Benjamin Kott, CEO of EnergyDeck, which provides a web-based platform for property firms to track energy and resource consumption across their assets.

"The holy grail [is] running and operating assets in the most sustainable way and proving this has a direct link to the bottom line," said Kott, who worked in energy management and investment at Google for four years. "Then it would become self-fueling because it makes sense [from a public relations perspective], it makes sense at an [ethical] level, but they also realize that it makes sense at the bottom line."