Grosvenor CEO: Strong ESG focus ‘an opportunity, not a burden’

Grosvenor, which is owned by the Duke of Westminster and perhaps best know for its Mayfair and Belgravia properties, this week posted a year-on-year increase in revenue profits from urban properties in the UK.

The business did confirm a significant decrease in its global revenue profit from urban property portfolio, from £99.7m in 2021 to £52.7m in 2022. Falling property values in some parts of the US are partly accountable for this decrease, but another key factor, Grosvenor has stated, has been implementing a new international urban property strategy.

The strategy, Preston tells edie, is a key part of Grosvenor’s plans to keep investing for long-term growth and positive impact despite the temptation to take a short-termist approach amid the current polycrisis. It will see Grosvenor expanding its portfolios in Europe and Asia in particular. The business will also increase exposure in sectors such as student housing and logistics.

“Undeniably, we’re in a fortunate position to have ownership with the farsightedness to be able to make investments that see us through the short-term while also looking beyond the current 12-month outlook,” Preston says. “… But it’s also about having a strong ethos around doing what we need to be doing to make a positive difference.”

Innovative offices

Grosvenor will not simply need to buy or build more buildings – they will need to meet more stringent environmental specifications. The Group’s UK property arm became the first in the European sector to set science-based emissions targets in line with 1.5C in August 2022. It will need to reduce emissions by at least 90% by 2040, meaning it cannot over-rely on carbon offsetting.

Preston argues that meeting this target “needs to be seen not just as a compliance burden and a cost burden, but as an opportunity”.

He reveals that Grosvenor’s portfolio of four more energy-efficient, low-carbon office buildings in central London each benefitted from pre-let rates of 64% or above, at higher rents than Grosvenor had been anticipating.

One of these buildings is the newly-opened Holbein Gardens. Holbein Gardens is a redevelopment and extension of an existing office building off Sloane Square and, by incorporating existing materials and lower-carbon raw materials, the development has exceeded the LETI Pioneer Project requirement of reducing embodied carbon below 500kg of CO2e per square metre.

Innovative materials used in the project include repurposed steel from other sites, cement-free concrete and cross-laminated timber.

To help reduce operational emissions, the building is all-electric and is fitted with energy-efficient lighting and mechanical equipment. It has also been designed to maximise passive lighting and to reduce the need for heating and cooling. It is certified as BREEAM Outstanding.

Preston says: “Why I mention [Holbein Gardens] is that it illustrates how doing the right thing environmentally is not just a cost – it is a business opportunity and a business driver. If you can generate a more efficient building, it will inevitably have lower running costs. Unsurprisingly, the overall economics make sense.”

A recent edie poll of 225 sustainability and energy professionals found that 75% see investing in energy efficiency this year as either a ‘high’ or ‘business-critical’ priority. Just 1% do not believe it is a priority at all.

It is perhaps no surprise, then, that one-third of businesses leasing office space are implementing environmental clauses in their leases globally. Common clauses include fitting improved insulation or glazing, or better systems to manage heating, cooling and lighting.

Beyond creating buildings that are lower in carbon, there is a growing economic benefit in creating buildings that benefit the wellbeing of visitors and residents. Since the launch of the WELL Building Standard almost a decade ago, four billion square feet of space have been certified. WELL documented a fourfold increase in certification in the 18 months up to August 2022.

edie asks Preston whether he believes that this trend is partly attributable to the drive to encourage workers back to the office post-lockdown. He says this is “most definitely the case”.

“Property people have been fond of saying that the three most important factors are ‘location, location, location’. I think we can absolutely say this is no longer the case. While location is, of course, still important, specifications on wellbeing and energy efficiency are at least as important – if not more so.”

It bears noting that, to strategically couple its long-term approaches to growth and environmental and social impact, Grosvenor has combined its sustainability and innovation teams. Heading up this combined team is Tor Burrows, who told edie earlier this year: “In such a complex world with multiple crises all happening at once, it’s no wonder that we will need to change our business models and think differently.

“I like to see sustainability as the future of the business model.”

Grosvenor’s annual review states that it expects improved operating performance in 2023, but perhaps decreased profitability as property values dip.

Beyond Grosvenor, it is expected that greener buildings will weather turmoil in the property market better than their average counterparts. JLL is expecting tenant demand for “highly sustainable” commercial buildings will increase at least eight million square feet by 2030, on 2020 levels.