Social Impact as an underrated value driver
Tenants are increasingly willing to dig deeper into their pockets for apartments that offer added social value. The Process Management Real Estate Monitor 2023 clearly confirms that tenants are willing to pay higher rents for housing that promotes the common good. In particular, properties that promote health and well-being and have convenient access to public transport and cycling paths are increasingly attractive to tenants, who are, in turn, willing to pay more for extra amenities. This trend is further supported by a PwC study on the social sustainability of residential real estate, which highlights a range of factors including accessibility, green spaces, and communal areas.
These developments are catching the attention of investors, especially as the sustainability debate in the real estate industry has so far tended to focus on the environmental. While the market has already implemented many of the easier environmental measures, the “low hanging fruit”, the more challenging and cost-intensive measures that remain often only deliver marginal added value. In contrast, there is still significant and cost-effective potential in the social aspect of sustainability – the “S” in ESG.
Social Impact as an economic factor
And it is in this area, perhaps more than any other, that the market is still in its infancy and many opportunities have not yet been tapped. This is not about playing environmental and social measures off against each other. On the contrary, both can contribute significantly to the long-term value and appreciation of real estate. That said, it is often possible to achieve more with less effort in the social sector today.
This is because investments in social measures do not always have to be expensive. Strategic planning, especially in neighbourhood management, can yield significant benefits, whether in new or existing buildings. Incorporating amenities such as daycare centres or healthcare facilities can enhance the neighbourhood as a whole and boost the market value of properties in the long term. This underscores the importance of integrating social measures into the planning process early on to streamline subsequent certification and reporting procedures.
Long-term trends and new standards as a lever for social sustainability
Furthermore, long-term social trends such as New Work, community, and diversity are increasingly shaping the requirements for real estate. The demand for integrated living and working spaces that prioritise sustainability is on the rise.
These trends are also evident in regulatory developments. The planned EU social taxonomy, combined with initiatives to measure social impact are creating new standards and establishing social sustainability as a quantifiable value factor. For instance, the EU social taxonomy is taking the first steps towards standardised measurement of social sustainability. At the same time, existing models, such as Livable Places and the Social Impact Investing Initiative, are already supporting the systematic appraisal of social added value.
This is coupled with enormous pressure to enact environmental measures driven by tremendous technological advances, increasing regulatory requirements, and an (in)active legislator. This, in conjunction with the pressure to innovate and the constant development of new state-of-the-art solutions in environmental technology, can, in some cases, create a barrier to investment. Given the level of complexity involved, successful value retention and efficient investment strategies are primarily achieved by experienced market participants with strong implementation capabilities.
Viewed through this lens, social investments may soon emerge as plannable and cost-effective long-term investments, to some extent offering a lower level of risk compared to their environmental counterparts. The expectation is therefore that the social dimension will no longer be viewed merely as a “soft factor”, but will instead establish itself as a financially relevant factor that contributes to sustainable value growth.