In addition to the obvious environmental benefits, can we find financial motives for a circular economy?
“It is 2019 and we are on this planet with 7.7 billion people; expected to grow to 9.7 billion people by 2050. This means that the world is expected to grow by the size of greater London every six and a half weeks. And on top of that, over the last 100 years our resource consumption has doubled - in some developed countries six-fold.”
These were the words that Marit van Rheenen opened with during a session on Circular Economies in 2019. Here we dig into her thoughts on Circular Economies and the built environment.
So what is a circular economy?
In its most simplistic form, it is about creating more value from fewer resources. The concept of Circular Economies stretches way beyond the linear concept of recycling or waste reduction to incorporate infinite resource loops. And a critical part of that is the financial benefits of doing just that.
And how does that differ from what we are doing currently?
In a linear economy you use something once then send it to waste. In today's recycling economy a lot of effort and money are put in to recycle something, however often with the recycled end-product being of lower value and eventually ending up as waste. In a circular economy, this finite line is curved and closed to a loop. The result is something of equal value and performance as before, that can be used time and time again, with great environmental benefit. The next step is to find financially scalable models to operate these circular models across portfolios, cities, regions, countries and continents.
In addition to the obvious environmental benefits, can we find financial motives for a circular economy?
According to Marit in a real estate context there absolutely are. Estimates by Accenture show that a circular economy model could unlock about $4.5 trillion of economic growth by reducing resource waste.
€4.5 trillion
Economic growth unlocked by reducing waste through a circular economy, as estimated by Accenture.
In this vision, buildings would be considered valuable even after they became obsolete as buildings. Every bit of manufactured capital would have a future value, in addition to its present value. As a landlord, your buildings would not just be valued on the basis of their land value, income streams, or the value of other comparable buildings, but also on the latent value of the materials banked within them. As a tenant, this would also apply to your fit-out, furnishings and electronic infrastructure. In effect, you would view these future material banks as an asset on your balance sheet.
Dutch bank giant ABN Amro, who own a €10.6bn commercial real estate portfolio, have seen the financial opportunity of applying a circular economy mindset to their investment strategy. The windows, beams and slabs of their portfolio will be valuable assets in themselves if used in a circular way. ABN Amro estate estimate that the value of materials at the end of the real estate lifecycle represents about 20% of their construction costs.
“Building a better tomorrow is not just about adding more solar panels, biomass boilers and monitoring energy consumption in the real estate assets we own. These things are just part and parcel on the road to green certification. Real change, real opportunity and real profitability all require a fundamental shift in our attitude to materials. But this shift can lead to great financial savings.”
Marit van Rheenen— Associate Director, Upstream Sustainability Services, JLL
This does not only apply if you are a developer or an evergreen investor. “Even with a three-year hold period, there are so many elements that can still contribute to a circular economy,“ Marit tells me, “whether that is just doing the maintenance or refurbs in a circular manner or whether it's about putting in place operational changes that can apply for the asset's entire lifecycle.” Beyond this material universe of value, there is also value locked into the use of space. With urbanisation and demographic growth set to add another 2.5 billion people to urban populations by 2050 , many cities - already creaking under the pressure of population growth - are in for a tough time.
Breathing new life into underused spaces is a booming market within proptech. Companies like LiquidSpace, PivotDesk and ShareDesk offer flexible and small work spaces, allowing businesses with excess office space or unused conference rooms to list them for rent by the day, week, or month. Start-ups like OfficeRiders in France or Vrumi and Spacehop in the UK, are all platforms offering underused space in private homes, entertainment spaces and shopping centres to be used as fitness studios, therapy clinics, workshop venues or coworking spaces. Simultaneously apps like JustPark and Spacer provide a platform for people to rent unused parking spaces - often at a lucrative premium.
Of building material wasted during construction.
of European offices are not used in working hours.
Of residential dwellers report living in too much space.
Of energy in existing buildings can be profitably conserved. Passive building standards are at or near profitability for most new-build segments, but these still only constitute a minority of buildings.
Of demolition materials landfilled, while some countries only landfill 6%. Most materials unsuitable for reuse as they contain toxic elements.
And retail real estate is not exempt from this space race. Companies like Appear Here, Go Vacant, Storefront, PopUp Angels and Pop Up are now helping businesses around the world find an empty space for their pop up shop or event for increasingly short periods and prime locations.
As our retail spaces across Europe face an increasing demand for dynamism and flexibility, could this be a part of the puzzle for securing their long-term success?
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