For professional and/or qualified investors only

UK Real Estate Viewpoint
Green to gold: realising opportunities fromthe carbon transition

James Coke

Fund Manager& Co-head ofInstitutional UK Real
EstateEmma Gullifer
Assistant FundManager

Issued June 2024

The potential for real estate to deliver green energy
infrastructure is often overlooked. We explore the interventions
required to monetise green energy, and how investors might
benefit from the carbon transition
At Columbia Threadneedle Investments we have long been vocal in our view that
decarbonisation presents a positive opportunity to align environmental and financial
outcomes. Incorporating green energy infrastructure into the development andrefurbishment of our assets reflects the tactical implementation of that strategicconviction.
Future-proofing assets to align with occupiers’ green ambitions demonstrates goodstewardship and offers significant potential to add value to existing land and buildings.
Through the delivery of green energy to occupiers and wider communities we are able
to generate additional revenues for investors.
The two principle drivers of value are power generation, primarily derived from rooftop
solar photovoltaic (PV) panel installations, and power provision, typically throughelectric vehicle (EV) charging. Revenues can also be derived through power storage(batteries), leveraging the arbitrage in the electricity price differential at various points inthe day, although this is less tested and typically attracts higher capital costs.

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UK Real Estate Viewpoint | Green to gold: realising opportunities from the carbon transition

Hurricane 52, Liverpool

How can green infrastructure be delivered?
Green energy infrastructure can be delivered either through existing buildings or by repurposing
surplus land or assets. Successful green energy real estate assets of the future are likely toderive significantly enhanced revenues through a mix of power generation and provision.

Power generation
On-site power generation has multiple benefits. As wellas significantly accelerating an asset’s pathway towards
operational net zero carbon emissions, being the ‘right side’ ofthe grid enables power to be sold directly to occupiers at retailprices rather than being sold back to the grid at wholesale
rates. Revenues vary depending on location, PV orientation andscale, but yields on cost are typically 7%-8%, with long-term
internal rates of return in the high single digits.
However, delivery of economically viable PV revenue ishighly complex and requires active engagement withmultiple stakeholders. Our asset management teams haveupskilled in this area via engagement with technical, legal andoccupational advisors to drive forward projects with maximum
mutual benefit.
Principle into practice: By way of example, we recently
refurbished a 30,700 sq ft industrial unit in High Wycombe,
including enhanced coverage of solar PV panels. This achieved
an EPC A+ rating, meaning the unit is capable of net zerocarbon operation. A new letting was achieved at an 81%
premium to the previous passing rent, and in addition, a Power
Purchase Agreement (PPA) was signed with the tenant, which
committed it to purchasing the power generated by the PVpanels. The project delivered an overall yield on cost of 9.8%
and a gross profit on cost of 38%.

Issued June 2024

Thomas Road, High Wycombe

Thomas Road, High Wycombe2

UK Real Estate Viewpoint | Green to gold: realising opportunities from the carbon transition

Power provision
The second opportunity to monetise green energy infrastructure
is to become a power provider through the installation of EV
charging points. This allows us to take advantage of favourable
government policy and consumer preferences. In January2024, the Society of Motor Manufacturers and Traders (SMMT)
reported sales of EVs, comprising battery electric vehicles andhybrids, account for approximately 36% of all vehicles sold in
the UK1 – up from 34% in January 2024. Taking account ofboth privately owned and fleet-operated vehicles, there are now
more than a million battery electric cars in the UK. This figure
is projected to increase significantly in line with governmentimposed decarbonisation targets through to 2050.
Aside from domestic driveways, which are not available toapartment occupants, the logical charging destinations ofchoice will align to existing demographic patterns – primarilyshopping. We view this as a significant opportunity to realise
latent value from underutilised areas of existing assets.

As one of the largest managers of carborne
out-of-town retail warehouses in the UK,with 142 assets under management2,
we believe we have a significant competitive
advantage in this area, and can operate
at scale to the mutual benefit of all ourclients and occupiers

Gallagher Retail Park, Coventry

All intellectual property rights in the brands and logos set out on this page are reserved by respective owners.
12

Society of Motor Manufacturers and Traders, January 2024 – based on BEV registrations since 2002.
Columbia Threadneedle Investments. As at 31 March 2024 across our UK real estate portfolios.

Issued June 2024

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UK Real Estate Viewpoint | Green to gold: realising opportunities from the carbon transition

Clipper Boulevard East, Dartford

Asset refurbishment and development
Finally, we see opportunity through traditional refurbishment
and development initiatives to deliver an enhanced specification
to the occupational markets, and benefit from greater rentalgrowth. Our active management bias enables us to deliver
these initiatives at scale, and we complete on average morethan 100 works projects annually. In its most basic form, asset
refurbishment that incorporates environmental improvements
will decrease regulatory, liquidity and pricing risks, and deliver
to increasingly discerning occupier requirements. This reduces
occupational costs and enables a rental premium to be derived.
A recent example of this is in Dartford, London, where therefurbishment of an industrial unit included the installation ofPV panels. This was instrumental in securing a new tenant at a
31% increase to the previous rent and is also forecast to save 23
tonnes of CO2/year – the equivalent to the yearly electricity useof 22 average UK households, or planting 145 trees.3
At the other end of the scale, larger masterplans and strategic
developments offer a unique opportunity to incorporate green
energy infrastructure and biodiversity initiatives alongside
traditional real estate construction.

Incorporating renewable energy at scale has
the potential to improve energy resilience foroccupiers, to the extent that some assets
can be operationally net carbon negative. The
scarcity of these assets ensures appeal to awide range of occupiers and investors

3

Bridgend Industrial Estate

Conclusion
Given recent headwinds, it is easy to be pessimistic
about the prospects for UK real estate. However,
nascent evidence suggests forward-looking returns
have the potential to surprise on the upside due tothe inclusion at scale of green energy infrastructure
alongside more traditional building improvements.
The green energy transition presents a real opportunity
for real estate to deliver additional value, providing
investors with the potential for enhanced financial
returns while simultaneously delivering on theenvironmental agenda.

Syzygy, as of Q3 2020.

Issued June 20244

UK Real Estate Viewpoint | Green to gold: realising opportunities from the carbon transition

Get to know the authors
James Coke, Fund Manager & Co-head ofInstitutional UK Real Estate
James Coke is Co-head of Institutional UK Real
Estate at Columbia Threadneedle Investments.
He took up this role in October 2020 andhas joint responsibility for the investment
performance and strategy of our UK institutional
property mandates. He is also portfolio manager
for the Threadneedle Property Unit Trust. Jamesjoined the company in 2013. James began hiscareer in 2007 and, before joining Columbia
Threadneedle Investments, he worked in theUK Capital Markets team at JLL, advising
institutional clients on property acquisitions anddisposals throughout the UK. James has a BSc(Hons) in Land Management from the Universityof Reading. He is also a member of the RoyalInstitution of Chartered Surveyors.

Emma Gullifer, Assistant Fund Manager
Emma Gullifer, MRICS, is the co-fund managerof the Columbia Threadneedle UK Housing
Fund, a strategy focused on delivering resilient
income and positive impact through the deliveryof affordable build-to-rent housing. Emma joined
Columbia Threadneedle Investments following aportfolio manager role at DTZ Investors, whereshe worked across two discretionary balanced
UK Property pension fund mandates. Emmaholds a BA in Linguistics from the University ofCambridge, an MSc in Real Estate from Bayes
Business School, and is a member of the RoyalInstitute of Chartered Surveyors. Emma isalso the Assistant Fund Manager of the CT UK
Commercial Property Fund.

Contact us
columbiathreadneedle.com
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To find out more visit columbiathreadneedle.com
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