What’s up with residential real estate? | The Pulse by GRESB

For the first episode of The Pulse by GRESB, we are bringing you a conversation about what’s new in residential real estate, the positioning of the industry within the GRESB Benchmark, changes coming around the corner, and much more. Watch our first episode below, featuring:

Can’t listen? Follow the first episode of The Pulse by GRESB using the transcript below. Please note that edits have been made for readability.

Tyler Guthrie: Hi everyone. Welcome to The Pulse by GRESB, a new audio series focused on ESG and sustainability in the real assets industry. I am Tyler Guthrie, Director of Communications, at GRESB, and I have with me Charles Van Thiel, Director of real Estate.

Hey Charles.

Charles Van Thiel: Hey Tyler. How are you?

Tyler Guthrie: I’m doing really well. How are you?

Charles Van Thiel: Very well, thanks.

Tyler Guthrie: Good. So today we are here to talk about residential real estate and its relationship to the GRESB Benchmark. Charles, can you set the scene for us and tell us a little bit about the history of residential real estate within GRESB and what portion of the Benchmark it represents?

Charles Van Thiel: Absolutely. Happy to. So, I think I will go back in time a little bit, all the way to the inception of the Real Estate Assessment, really, back to 2010.

I think it’s fair to say that the Real Estate Assessment was initially developed with a primary focus on commercial real estate, meaning, the majority of the assets back then represented in the GRESB Benchmark were mainly office, logistic, and retail [real estate]. And, it’s been the case for several years post-inception of the Assessment.

However, if you actually look over the evolution of those proportions over time, an interesting trend to note is that the proportion of residential assets reporting to GRESB on an annual basis has been consistently and steadily increasing and growing over time to eventually become the biggest single sector in the Benchmark in 2022, representing approximately 36% of the Benchmark right now. So, I think it’s fair to say that those proportions have changed and obviously the dynamic have changed, meaning that the priorities have changed in terms of development of the Assessment.

Tyler Guthrie: Yes, that’s really interesting. So basically now we’re in a new Benchmark, a new year where residential real estate really needs to have a little bit of a specific focus from the GRESB Foundation, which is what we’ll talk about in a moment.

But, there’s some changes coming around the corner this year in terms of residential real estate within the Assessment, correct? Can you tell us a little bit about what those changes are?

Charles Van Thiel: Yes, of course. So, the first changes to the Real Estate Assessment, relating specifically to the residential sector, are impacting the 2024 Assessment. And, these changes mainly relate to solving some of the technical and operational issues faced by large residential participants. For instance, some large residential assets, at times, have multiple energy ratings attached to them. Whereas, this reporting scenario was not properly catered in the Real Estate Assessment before, so there was previously only one energy rating per asset. And as from 2024, the Real Estate Assessment will allow multiple energy ratings to be reported for large residential assets. So that’s the first thing that you’ll see in 2024. But, of course, there are going to be many more changes in 2025 and beyond.

Tyler Guthrie: Okay. That’s fascinating. So, really important changes to reflect the needs of the residential sector in real estate. These changes are being driven by the GRESB Foundation. Can you tell us a little bit about how this process has happened, what the GRESB Foundation is, and how these [changes] have come to light?

Charles Van Thiel: Yes, of course. So, in general, [imagine] there is something that is a certain limitation observed by the industry or something that requires more development. There is a lot of industry feedback that GRESB receives. This really started on the residential front a couple years ago, which is why GRESB then conducted an industry-wide survey at the end of 2022, aiming to get much more feedback from the industry and to formalize what the current limitations are relating to the residential sector within the Assessments. And that  has resulted in good outcomes and a clear need from the industry for the Assessment to better cater for the residential sector in the future.

And so that has been acknowledged by the GRESB Foundation, which has formally approved a plan for the Real Estate Assessment to better cater to the residential sector in the future. And this plan essentially started in 2024, with the changes that I described earlier. So, [this entails] solving some of the technical and operational issues faced by large residential participants.

But, a lot of work is currently happening in 2024. [We are] aiming to review topics currently covered by the Assessment that are deemed potentially immaterial or not fully applicable to the residential sector.

Think about green leases or tenant fit out. [Think about] things that usually residential landlords don’t have much influence or control over, as well as developing new ESG topics, specifically material for the residential sector, but topics currently missing from the Assessments. So, in short, it is a multi-year plan that started crystalizing in 2024, but that results in a lot of work already this year, with an aim to impact to 2025 Standards.

But in 2026 and beyond, the Standards will also be impacted by some more developments on that front.

Tyler Guthrie: I see. And the GRESB Foundation is represented by the industry itself, right? So, what would be some of the opportunities for someone who wanted to get involved or have their voice heard? What would they do?

Charles Van Thiel: Of course. So, as a quick reminder, the GRESB Foundation is an independent governance body that owns the legal decision-making authority over the GRESB Standards. It’s [composed of] approximately 45 individual industry representatives covering all regions and sectors of both real estate and infrastructure.

And, it’s composed of three main committees. And the committee that is responsible for maintaining and developing the [real estate] Standard is called the Real Estate Standard Committee or the RESC. And the Real Estate Standard Committee, of course, heavily relies on the direct input from the industry in order to inform the necessary development work stream for the Standards. And, that can be done via industry working groups. So, the GRESB Foundation regularly runs industry working groups that offer the opportunity to industry members to be involved and to contribute and to share knowledge.

But, that can also be done via different channels, such as: taking our survey, dedicated interviews, or simply [attending] informal meetings with GRESB. So, [there are] a lot of opportunities to be involved. Particularly, at the end of 2024, the GRESB Foundation will be running an industry working group on the residential real estate topic, where a call for applications will be shared with the wider industry in mid 2024, allowing the wider GRESB membership to apply and to contribute.

Tyler Guthrie: That sounds like a great opportunity to give back. Speaking of which, taking a step back, what does this big body of work on the residential side of the Assessment have or suggest in terms of the direction of travel for the GRESB Standards as a whole?

Charles Van Thiel: Yes, that’s actually a great question because we’ve been talking about residential until now, but you can almost see residential as the first step toward a much, much bigger overhaul of the Real Estate Assessment in the future. At the moment, what we’re doing with residential is essentially introducing some of the differentiating factors between sectors in the Assessment, something that we’ve never done before. Up until today, GRESB has always proposed a one-size-fits-all approach to the industry. And, [this] has been extremely effective for the last ten years, because it’s essentially proposing a simple, consistent, and quite comparable approach for the whole real estate sector to assess ESG performance.

However, we’re observing that the real estate industry, from an ESG perspective, is getting to a level of sophistication that requires more than the one-size-fits-all [approach]. And, with the work that we’re doing on residential, we’re essentially introducing sectoral differentiation in the Assessment, starting with residential, because residential is certainly the most different sector compared to the others. But, you can, of course, expect this kind of mechanism to, in the future, apply to other sectors.

Think about data centers, think about retail logistics. The meaning of ESG itself differs based on the real estate sector that is being assessed. And this is something that will be more and more reflected in the Assessment in the future.

Tyler Guthrie: Oh, that’s great. That’s really interesting to hear.

So, lots of changes [are] happening now, [and] lots of changes potentially in the future. Can you tell us a little bit about where people could go to find more information on the specific changes and also the long-term roadmap of those Standards?

Charles Van Thiel: Of course. So I’m going to refer you to two key documents if you’re interested in understanding more about the changes in the short term that will impact GRESB participants. I’m inviting you to read a document that’s called the 2024 List of changes for the GRESB Real Estate Standard that explains the rationale and the impact of each change impacting the Standard.

But, if you’re looking for something a bit more high level, but also forward-looking, at the end of 2023, GRESB released a document called the Strategic Roadmap for the Standard. It sheds light on the general direction of travel of the Standard, providing a lot more detail about what I just mentioned — the introduction of materiality [as a] consideration to the Standard, further differentiating residential versus other sectors, as well as other factors that really drive the direction of travel of the Standards, such as the transition of the Standard to better assessing and rewarding performance, etc.

Tyler Guthrie: Fantastic. Alright, well that is about as much time as we have today, but, Charles Van Thiel, thank you so much for joining me on The Pulse.

Charles Van Thiel: Thank you to everyone for listening.