The multifamily housing sector is currently navigating a critical juncture, contending with economic headwinds such as rising interest rates and stagnant rent growth, while increasingly prioritising sustainability as a cornerstone for enduring success. As economic volatility persists, sustainability has emerged as a pivotal factor in enhancing asset value and attracting both residents and investors. This transformational shift was at the heart of a recent discussion hosted by BREEAM USA, bringing together industry leaders to explore the evolving landscape of sustainability in multifamily housing.
The sector has undoubtedly felt the economic tremors set off by fluctuating interest rates and decelerated rent growth in the aftermath of the COVID-19 pandemic. Nevertheless, amid these challenges, a commitment to sustainability has surfaced as a strategic advantage. In a recent BREEAM USA panel, experts elucidated how sustainability transcends mere jargon, presenting itself as a tangible strategy to weather economic storms and enhance property values. Thomas Stanchak, Managing Director of Sustainability at Stoneweg US, underscored the significance of astute resource management during economic downturns. “In economies like this, good management and good stewardship show,” he remarked. “It’s not about outspending or spending more; it’s about outsmarting. Ultimately, that’s what sustainability is—making durable investments.” Cope Willis, Managing Director of Sustainability at Greystar, concurred, noting that macroeconomic challenges have catalysed innovative thinking around sustainability. “With interest rates and slowdowns in rental rate growth, portfolio managers have had bigger fish to fry. But the positive is that teams are looking for any way to improve net operating income and energy efficiency. Sustainability efforts can be a great way to do that.”
The growing emphasis on sustainability extends beyond operational levels to the investment community. Multifamily investors are increasingly demanding comprehensive Environmental, Social, and Governance (ESG) reporting, prompting property stakeholders to adopt innovative green strategies to meet these heightened expectations. Giuliana Kunkel, Associate Director of ESG at MetLife Investment Management, highlighted the trend of rising investor scrutiny. “We are continuing to see more and more investors approach us with questionnaires each year requesting different kinds of ESG data,” she explained. These inquiries often translate into actionable sustainability initiatives, such as water savings pilots at multifamily properties. Willis added that sustainability remains a top priority for Greystar’s partners, particularly those based in Europe and Canada. “Top issues are still energy and carbon. In the past, it’s really been about ROI. Moving forward, we’ll need to quantify some of the harder-to-quantify aspects, like the liquidity risk tied to inaction and potential fines.”
The importance of sustainability is further underscored by the preferences of multifamily residents. Surveys consistently reveal that residents prioritise sustainable living options across various demographics. “It’s pretty consistent across the different demographics,” stated Willis. “Energy-efficient lighting, appliances, recycling, and smart thermostats are top priorities for them.” Kunkel shared insights from MetLife Investment Management’s annual ESG challenge, where properties compete on sustainability measures. “The multifamily winner is always the property that excels in social engagement. This past year, the winning property had initiatives like an edible garden for residents, meditation sessions, community service events, and a lap pool.” Stanchak stressed the importance of considering resident sentiment in sustainability strategies. “When we collect data, it’s consistent that the majority of residents consider sustainability a priority. Ignoring the opinions of your customers is not appropriate stewardship.”
BREEAM USA plays an instrumental role in promoting sustainability within the multifamily sector by providing a platform for stakeholders to discuss and implement innovative green strategies. The organisation offers resources and guidance to navigate the complexities of sustainability, from regulatory compliance to resident engagement. For those who missed the enlightening discussion, BREEAM USA has made the full recording available, and subscribing to their newsletter offers access to the latest news and insights from world-leading experts.
The sector’s pivot towards sustainability is driven by more than just economic factors. The increasing frequency of severe climate events has underscored the urgency of adopting resilient, forward-thinking strategies. Government regulations and Building Performance Standards are also steering the industry towards more sustainable practices. The active involvement of investors, who are demanding detailed ESG reporting, testifies to the growing importance of sustainability in the sector. These investors recognise that sustainable practices not only mitigate environmental impact but also enhance the long-term value and resilience of their investments.
As the multifamily sector continues to navigate economic challenges, the role of sustainability is poised to become even more significant. Future developments will likely focus on quantifying the less obvious impacts of green initiatives, such as liquidity risks and potential fines for non-compliance with environmental regulations. Technological advancements will be crucial in this evolution. Innovations in energy-efficient appliances, smart home systems, and sustainable construction materials will become increasingly prevalent, requiring multifamily owners to stay abreast of these developments to maintain their competitive edge. Resident engagement will also be a key focus area, with sustainability becoming more important to residents. Multifamily owners will need to implement initiatives that resonate with their preferences, such as community gardens, recycling programmes, and energy-efficient upgrades.
In sum, the multifamily sector stands at a crossroads, with economic challenges and sustainability driving a transformative agenda. By embracing sustainability, stakeholders can create resilient, attractive communities that withstand the test of time. Insights from industry experts reveal that sustainability is not merely about reducing environmental impact but also about making smart, durable investments that can endure economic volatility. As the sector progresses, its commitment to sustainability will continue to be a defining factor in its success.
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