You’ve had two years ....
From The Garden of Earthly Delights by Hieronymus Bosch. Painted between 1490 and 1510.
This doesn’t feel like the time for beating around the bush. Hard on the heels of a global pandemic we now have a major war in Europe. Something I did not think I’d see in my lifetime. Probably because I had not been thinking hard enough. Maya Angelou had a point when she wrote “When someone shows you who they are, believe them the first time.” Complacency has consequences.
In April 2020 I wrote a blog post quoting Lenin’s famous phrase “There are decades where nothing happens; and there are weeks where decades happen.”. Two years later, for very different reasons, we are in another such time. The first was most likely a natural ‘Black Swan’ event, the latter the result of one man’s whim. Combined, the world will never be the same again. Not least of all, it will become more serious, as we have many challenges ahead.
Easy as it is to allow the magnitude of events to overwhelm us, we are where we are. And we need to recalibrate. What do we know, what do we not know, and what should we be doing?
What we don’t know of course is when the war will end, and how. And for most of us we can but pray for the least worst outcome. We have little agency in the matter. So we need to focus on what we do know.
First off, we know the war is having a dramatic impact on the price of many commodities, and these will have knock on effects throughout society. For every individual, every family, many of their staple purchases will become significantly more expensive. Not least of all utilities and fuel. Heating and transportation costs are set to soar.
So just as we were approaching the time to ‘return to office’ a major impediment has appeared. Adding the cost of commuting back into peoples already strained budgets is not going to be welcomed. For two years many people have not been incurring thousands of pounds of commuting costs. The bar for demonstrating why being in the office is worthwhile is getting ever higher. As of course is the cost of actually running said office.
The bar for explaining why sustainability and energy efficiency is important though has dropped to almost nothing. War in Ukraine, and the knock on consequences for global energy supplies, has jolted all of us into realising that our very freedoms are imperilled by not having a robust, resilient, mostly renewable energy supply under our control. Sure there are some, like the despicable Nigel Farage, trying to use the same argument to justify ramping up fossil fuel use, but these are the chunterings of fools. The most obvious first order consequence of war in Europe will be the turbo charging of efforts to grow renewable energy production, massive investment in new battery technologies, and pushing to decarbonise the built environment. Supply has to grow and demand has to decrease. As a matter of urgency. In the short term we will have to activate fossil fuel supplies that we’d let wither on the vine, but doing so will only undergird the need to bolster renewables and decarbonise.
The implications for real estate could not be clearer. There will be a significant premium for highly sustainable assets and an increasingly significant downgrading of those that are not. Of course this was happening anyway but what we thought would take a decade or two needs to be done in a matter of a few years. Can’t be done? Well neither could persuading Germany to spend a €100 billion on their military. Make no mistake, these are now different times. Anything is possible when the largest economies in the world decide something is necessary.
Forget all the talk of ESG ‘Greenwashing’ - gaming the system is going to die out very fast. Real Estate’s number one priority is going to be decarbonisation. Partly because governments, and societies, eyes are going to be on us, but mostly because running our assets is set to become really really expensive.
Sustainability is a systems problem. Even a system of systems problem. It cannot be achieved whilst thinking and operating in silos. Everything is connected to everything else. It needs to be the flag in the ground around which everything else is designed. If we want X output what does that imply for inputs A, B, C, D…. Where A, B, C or D might be hardware, software or services. That might be under our control or under the control of one of our partners, suppliers or customers. Who also might have entirely different incentives or motives to ourselves.
Historically this rapidly got us to ‘too difficult to deal with’, so we didn’t. This is no longer acceptable. This industry needs to deal with the ‘too difficult to deal with’ problems. We need to stop thinking of ourselves as cogs in the wheel when, in reality, we are the wheel. Almost everything in the world happens in, or to, real estate.
The tragic events in Ukraine must be a catalyst for action. Being dependant on murderous dictatorships for energy is a grave weakness. Real estate is responsible for 40% of our energy needs. And 30% of carbon emissions. Both need to be slashed. As a matter of urgency, not long term aspiration.
And I haven’t even got to what we’ve had two years to think about. That’ll have to wait until next week.