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Property Week Climate Crisis Challenge podcast: unseen barriers to sustainable development

Posted on 03 August 2021

Matilda Jacobs 
Hello and welcome to today’s podcast.  This is the third episode in Property Week’s Climate Crisis Challenge Series in collaboration with UK GBC and today’s episode is with one of the campaign’s lead partners, Mishcon de Reya.  We are going to be talking about the unseen barriers to sustainable development as we all continue on our journey to hitting our 2050 net zero target, is the law speeding our path to sustainability or is it just putting unnecessary bumps in the road?  I am Matilda Jacobs from Blackstock Consulting and today I am delights to be joined by Nicola Insley, Legal Director in the Planning and Environment Group at law firm, Mishcon de Reya, Basil Demeroutis, Managing Partner at FORE Partnership, a purpose driven real estate investment firm and Barry Jessup, Chief Executive at First Base, a mixed use developer focussed on delivering long-term social value for communities across the UK.  Nicola let’s start with you.  It’s becoming increasingly clear that if we are going to be able to meet our 2050 targets then we have to start making some real change now.  How are you and your clients finding the legal landscape and do we need legislation that embraces flexibility and allows for innovation or is what we really need more of a strict rules-based system that is going to ensure we all get a grip now?

Nicola Insley
We certainly need some rules to put the backbone around the Government’s targets but they need to be coherent and able to read as a whole part of a project plan that has timetabling and has funding to back it to enable the Government’s targets to be delivered in time.  I think one of the problems that we have at the moment is that the approach to legislation has been rather piecemeal in different sectors for example, in the planning sector where I spend most of my time, we have some really great principles coming forward in some plans and in some boroughs, for example, in the London plan but this isn’t always being followed through throughout the country or in Boroughs which means that while everybody is committed to the climate change emergency, their ability to actually control and deliver upon that is limited and clearly there is a timeline when introducing new legislation and new policy which means that that’s going to have an effect on the deliverability of the goals, particularly because even once you’ve actually got a spade in the ground and built something, for that to have an effect is going to take a little bit longer as well so my view is that we need a legislative system but it needs to be coherent, it needs to be funded and it needs to be in one place, ideally a project plan for managing climate change.

Matilda Jacobs
Absolutely and Basil do you agree that what we’ve really had up to now is this complete piecemeal approach?

Basil Demeroutis
Yeah I think absolutely it’s um, and as an investor, developer, it’s very tricky to, to follow.  We here at FORE have been investing across the UK be it in Scotland or in the south west or here in London and it does vary by Council, by Borough, by part of the country and indeed by individual who might get within the, within the certainly in planning, within the planning framework.  I think real estate ends up being one of the most highly regulated industries when you think of it, it is hard to imagine one that is more regulated, maybe medicine or healthcare but the myriad of laws that as an owner investor developer we have to, we have to not only follow but be experts in and navigate.  I think it’s, it’s become overly complicated and I think what we need is really a harmonised approach I agree completely that a unified theory of planning and policy is absolutely essential if we want to encourage further investment into the sector.

Matilda Jacobs
Absolutely.  So do you find it quite challenging as an investor having to keep up-to-date and on top of all of those you know, rapidly changing policy and regulatory requirements at any one time?

Basil Demeroutis
I mean here at FORE we have made it our business and it really the firm has been founded nearly a decade ago on the basis of, of driving financial value through environmental and social outcomes so it’s central to our business but it’s not central to many investors or fund managers or developers, owners, businesses and I think what’s complicated particularly for those who haven’t spent the past decade thinking about it and have only been really coming laterally to, to the issue perhaps driven by policy and regulation is that they have to be pretty quick studies and pretty quick studies across so many different subject matters from how buildings get built to social issues, to environmental issues, waste, water, energy, where does steel come from, how do people get to and from work through transportation policy, real estate is really a multi-dimensional asset class, part of what makes it so exciting for me as an investor but at the same time it’s, it’s really almost unnavigable.

Matilda Jacobs
And it’s interesting actually that you kind of touched on less or sort of the regulation around medicine as well.  Do you, do you think there are lessons that we should be taking from other sectors when it comes to sustainability, whether that’s the kind of automotive industry or others or should we be looking at real estate very much in its own bracket?

Basil Demeroutis
Real estate it is unique, we think of, here at FORE we think of real estate really as part of an urban system and our theory of change around how do we improve environmental and social outcomes really has these multiple dimensions to it.  So it is complicated but I think that’s no excuse for, for not having you know, short, sharp, clear, well defined policies that can influence behaviours and drive positive behaviours as well as mitigating some bad ones.

Matilda Jacobs
And what areas do you think regulation and policy can particularly help?  Where can it offer benefit and where is it just going to be a hindrance.

Basil Demeroutis 
 think it can come from a lot of different directions.  First of all I think, a longer topic, but I do think the planning regime needs to be comprehensively overhauled and maybe we will touch on that a little bit more and Barry probably has some insights on that as well.  I think we just need something to say around whether its design life or carbon intensity, even the definition of net zero carbon for example, thankfully there seems to be some, some consensus building on what that means but if you ask twenty developers what does net zero carbon mean and what are the rules around it, I doubt you’d get… maybe you’d get ten answers and I am sure all ten of them would be different.

Matilda Jacobs

Yes I would agree with you and actually planning is definitely an interesting part of it so Barry I don’t know whether well, it’s definitely time to come to you.  Obviously the question of delivery is one that gets bought up a lot and we hear time and time again that the lagging planning process can stall development.  Do you think the current planning system is a barrier?

Barry Jessup
That’s a good question.  People always come to developers to have a whinge about the planning system so it’s a natural first place to start but I think it clearly is slow, it clearly is difficult and I think it does inhibit some of the… no the progress we’d like to make towards sustainability goals but I am not here to sort of complain about it, I think what I would ask is you know, we very much welcomed the, the Government sort of planning reform of summer 2020 and the big thing for me now is to make sure that Local Authorities don’t try to overlay that with their own micro-management and their own micro-regulation.

Matilda Jacobs
And just for the benefit of the listeners, what were those major planning reforms?

Barry Jessup
Well very simply I mean they just broaden out the planning uses for rather than having a specific sub-use for commercial and retail etcetera, they made them very broad and had a single use class that, that allowed the landlord and developer to be much more flexible with that space.  That’s important for a number of things, it’s very important for the regeneration of the High Street which we are not here to talk about today but it is very close to our heart but secondly it’s really important from a sustainability perspective as well because I think I am right in saying that the real estate sector is one of the worst you know, sort of pumping carbon into the air and the reality is most of that comes through construction and that’s because we are building a lot of buildings that have a very short shelf life or become obsolete very quickly and much better than recycling of course is reusing and the ability to reuse a lot of the perfectly good buildings that we’ve got in our city centres I think will be really important in hitting those sustainability agendas.

Nicola Insley
I’ve got a question for Barry if that’s okay.  So you mentioned about the broadening of the use classes and this new sort of class E which is all of the town centre uses now rolled into one.  Slightly later came in the class E to C3 permitted development right which allows you to move from those town centre uses to residential accommodation without applying for planning permission.  Do you also welcome that in the context of achieving sustainability goals?

Barry Jessup
I think the reality is buildings, the good buildings tend to have multiple uses over their life so the ability to be flexible is really, really important.  Interestingly when you move to residential that’s usually the last piece of that building’s life, very few buildings move from residential to anything else so it is quite a big decision to do that.  As a general rule we don’t like permitted developments because in our experience they are pretty shoddy and low quality and I suspect aren’t around for very long and they are creating problems for the future.  There are obviously occasions when it can help to bring vitality back into city centres and I think that’s, that’s really helpful.  I think it is interesting because it is a bit like the sustainability regulation for me.  This is all about setting a bar for the people who aren’t trying so it is almost setting a minimum bar above which everybody needs to, needs to pass so permitted development residential would be a great example of that which they have started to do now.  Having some regulation in terms of the quality of that product is really, really important.  It is exactly that same approach I think we should be having on the, on the sustainability side which is to set a you know, low, non-negotiable minimum bar but then allow the market to progress that and the investors you know, like Basil and the developers like us who really want to raise that bar higher and higher, don’t tie us up in knots that prevents us from doing that.

Nicola Insley 
The Government is suggesting doing that with this concept of 10% biodiversity net gain as a result of built development.  As urban developers how’s that going to impact on you?

Basil Demeroutis 
I think it’s a great idea, I think we, we all just as citizens and we all live in, in cities and we frankly are big believers in cities and the resilience of cities and all the great things that happens in cities, the crucible of culture, there were innovation actually, the genesis of innovation often is within cities so I think we need to take care of the cities and continue to make them happy, healthy, friendly, clean places to live and biodiversity is certainly one of them.  I think that’s why we really do need to take a holistic look at ESG you know, that’s a pretty narrow policy.  Query whether that’s getting, moving the needle on ESG or not.  I am personally in favour of it but I think we need bigger, bigger and more ambitious policies; fewer, bigger and more ambitious policies.  So Barry touched on design life, I doubt any investor, developer even knows what design life their buildings are being built to.  Is it 30 years, is it 50, is it a 100.  It’s complicated so why not a policy that you cannot build or refurbish a building unless it has a 100 year design life and if you are working on the premise that it’s only 50 years, you know you’ve already then have the carbon, imbedded carbon of that, of the life cycle of the building.  I mean that’s pretty simple math to do and you don’t know a PHD in public policy to figure out that that’s a good thing to do.

Nicola Insley 
I think that’s a really super idea.  I also wonder about some of the sort of risks associated with some of the targets that are set by the Government.  So we recently saw I think it was in the energy white paper, they were talking about not having gas coming into houses anymore, perhaps introducing things like hydrogen boilers.  Now that’s a fairly new technology and hydrogen in my head think explosion and therefore how do we respond to sort of suggestions like that, that are coming through in the guidance where we might see a bit of inherent risk?

Barry Jessup
Well firstly I think that’s the sort of guidance that I would love to see so I think for me it’s, going back to I think you know, Basil’s point previously, simple top down guidance around a very simple policy that everybody can understand I very much welcome and I think there is an analogy with the, with the car industry when I think obviously we’ve banned, or the Government has banned you know, petrol cars from 2030 and it’s that sort of simplicity that everybody understands and there is a lot of whinging from the car industry etcetera but then very quickly they adapted and moved on and I think that sort of idea, whether it’s banning you know, gas etcetera from developments, we already do that on a lot of our schemes, we don’t have gas and, and again you get some people you know, complaining about that initially, potentially the estate agents etcetera but the reality is you can make it work and it is that sort of very simple top down regulation that I think is really powerful.

Basil Demeroutis 
Yeah I would agree, I think that’s an easy one to understand and so I think if you look at Barry’s example of the car industry, what’s happened actually I would argue that there has probably been a minimal amount of whinging and actually what it’s done is driven innovation and car companies now, we saw this week a billion pound investment in a new battery factory in, in the UK, 6,000 jobs.  I think that’s exactly the kind of thing that we need and indeed in our, like Barry, we’ve been putting electricity only in buildings now for a few years and what we found in buildings whether it’s our development we are doing at Tower Bridge Court in London or the one in Glasgow called Cad Works where we switched mid-stream to be all electric, what we found actually is that there is potential savings and when we switched mid-development at Cad Works for example, we saved almost £100,000 by taking out the gas and putting in electricity.  So it is not always a tax, it’s not always expensive, innovation doesn’t have to cost, it just takes a few extra brain cells.

Nicola Insley 
Okay so what would you reckon is the best way that the Government could incentivise people in the development industry to deliver more on environmental targets rather than sort of this stick approach that everybody feels that they are experiencing the whole time.

Basil Demeroutis
I think so much of our work in, in the environmental side of real is about you know, abating a negative, it’s making things marginally less bad and I think you know, whether it’s slowing down deforestation or slowing down the climate change, you know, it’s hardly rewarding to, to make things worse more slowly, if you follow me.  But you know what I mean so like I think we’ve got to get ourselves out of that mind-set, that’s important work, I don’t mean to belittle it when we need to, we need to reduce carbon, we need to do all of these things, we need to protect the forests and protect the environment but how do we do it in a way that is more joyful and happy and fosters a better life for us all in the cities in which we chose to live?  I think that’s got to be the, the, I mean unfortunately we can’t legislate for that but I think that’s got to be the ultimate aim, is how do we create policies that get us out of this marginally less bad mind-set.

Barry Jessup
I think that’s exactly right and I think there are lots of create opportunities to do that.  Let me give you a couple of examples, I am going to start with the biodiversity point you made previously because that’s a no brainer for me and you know, we only do urban regeneration, we only develop on brownfield sites, I am personally not a believer in redevelopment and greenfield sites, I don’t think it’s necessary, I think it’s just either lazy Councils or lazy developers or lazy communities frankly, there’s plenty of brownfield land that could be redeveloped to give us everything that we need so you know that’s a starting point and therefore having a positive biodiversity gain on every scheme is an absolute no brainer and should be a simple rule and I think the target is nowhere near high enough so I would be raising that significantly.  I think what’s interesting then for me incentivisation perspective, this isn’t hard, so let me just give you two examples, homes – so stamp duty, people pay stamp duty on their homes – well if you achieve a certain sustainability criteria to be decided then maybe the stamp duty is less or zero or something, very simple and that, that’s money that you know, candidly go straight to the developer because you just put the prices up but that’s an incentivisation, really simple to do.

Nicola Insley 
It’s like car tax.

Barry Jessup
Yeah exactly the same, you could do exactly the same with offices, so business rates.  So just have a business rate discount for sustainability.  Very little admin, you know you’d have to… so there are certain incentives that I think are very easy to bring in but I’m like Basil, I’m a capitalist and I believe in the free market and I think what’s interesting for me is the free market is already taking us down this route anyway and if you look at the sustainability journey of real estate over the last 20 years I think we designed London’s first net carbon zero scheme in 2007 in Greenwich and at that point in time residential development was a long way ahead of office development in terms of sustainability.  I think what’s interesting now is office development I think is pushed ahead of residential in terms of sustainability. One of the reasons for that is you know, investors now realise that if you are trying to let a building in 2027 to a company that has set 2030 targets for zero carbon and that building is not zero carbon well good luck letting that and so people now understand that that’s going to be a major issue and investors are therefore investing in their product which is great and so the market is definitely moving in that direction.  My next expectation is that the build-to-rent market will do the same.  So there is not yet a criteria for build-to-rent investors to have very high sustainability criteria for their buildings, it’s definitely coming in and I would expect that to be in the next couple of years because I think in five to six years times there will be residents who will chose, who will put a premium, pay a premium to be in a more sustainable development and as soon as that happens of course the investors will want to follow.

Nicola Insley
That bang on reflects my experience too how it’s really fascinating how environmental stuff has moved from the sort of third sector part of somebody’s business and business model from their sort of CSR programme into the core part of how they deliver their financials.  We are seeing that with so many clients now because it’s being driven by their customers.  I mean even sort of law firms if we are going to pitch for somebody, they are very interested in what we are doing in terms of how we are doing against our carbon goals, how we’re doing in terms of our ESG you know, what’s our recruitment like of people from ethnic minorities or people who are economically disadvantaged and I think it has really moved the dial away from it being an ancillary part of business to an absolutely core part of our function over the last maybe four, five years in a way that it hasn’t moved so fast before.

Barry Jessup
And that’s really exciting.  It’s really, really exciting because I think we are now going to see, and this goes back to the point about regulation, this is why you don’t want too much regulation to be re-imposed because there is an opportunity now for people to step into that space and I think it’s you know, whether it’s you know our scheme in Cambridge we have where we are building a new park running to the station on a site that is currently you know, a building supplies merchant, that’s, that’s a new habitat for wildlife, that’s a new you know, community facility etcetera and the local community are really sort of seeing that as being a really important part of, of the development proposition.  We’ve just produced a wildlife brochure for that scheme…

Nicola Insley 
Amazing.

Barry Jessup
…to explain the sort of you know, the hedgehogs etcetera that are going to be welcomed into that development and that’s not hard to do and we are doing that within a sort of large mixed use development.  We also had an occupier came down to our scheme in Brighton a couple of weeks ago looking at office space and I’d say 80% of the questions they ask weren’t around the floor plan or the areas, they were around sustainability aspects of the scheme you know, and around the ventilation and, and all the operational zero net carbon capabilities.  So all of those things and that’s really a change from perhaps what is happening two or three years ago.

Basil Demeroutis 
Yeah I think we need to remember that not only is the real estate industry faced with regulation and this fast pace change in policy but so too are all our clients and customers and tenants and so they are going through their own existential journey and they are being asked what, what values they stand for and what’s their purpose and for the CEO of a you know, FTSE 100 company or a small mid-sized entrepreneurial business.  They are not trained to answer those questions, these are new complex problems for them and so they you know, are seeking out answers to those questions and if we as owners can help them navigate this question of, of… that they are being asked, what do they stand for, what are their values and they can come into our buildings and piggy back off our values because let’s remember the most obvious expression of someone’s purpose and values is the space that they occupy and so that’s what we are finding and to Barry’s point, we are not selling space, be it at Tower Bridge Court in London or Cad Works in Glasgow on the basis of floor to ceiling heights and column spacing.  It’s around what’s, what is the purpose of the building, what is its brand, what is its values, what does it stand for and how can I get some of that and piggy back off some of that from my own business.

Matilda Jacobs
Absolutely and I suppose another interesting question is have we just for too long been focussed on the E part of ESG and thinking now about what customers or their employees want from a space.  Do we need to think about that idea of sustainable development a little bit more broadly.

Basil Demeroutis 
We’ve always from inception given our heritage of coming… being formed out of a family office, we’ve been focussed on, on the impact piece, social impact piece and we’ve always believed that the E and the S go hand-in-hand and so we think that you need to create an authentic answer to that question by integrating E and S together and so when you make an intervention in the building you don’t think about cycling on Tuesdays and food poverty is on Fridays, it’s not how life works.  These are deeply integrated and if you come at the problem from this urban system, from this systemic prospective then you start to unpack some of these problems around whether it is a just transition or food poverty or gender equality and you look at it holistically from the systemic approach then really the E and the S start to disappear and all you are looking at is really these, these deeply seated social issues and environmental issues that you are trying to solve with one, one, with one asset, one building that you happen to own in that community.

Barry Jessup
I think that a developer has a huge responsibility because typically what we leave behind is there for a long time.  It is also a massive opportunity to create some good and I think it is diabolical if developers aren’t able to deliver on that because really it isn’t that hard,  you know, whether it is no skills and training or whether it is no creating new spaces and amenities or it’s helping on the sustainability side.  All of those things frankly are really straight forward and it is a disgrace if developers aren’t, aren’t developing those but I think it is interesting for me as well, it’s not only just a social duty, I think frankly now it also has an economic value to do that for reasons we have already talked about but equally it’s… going back to Basil’s point, it’s now deeply embedded I think in the psyche of the customers of tomorrow so you know, Gen Z etcetera and it is not something they just come to at the weekend, this is something that is the, the… as Basil said, the office as an example, is a manifestation of a business' purpose and values and so it should be and that is why you know, designing offices very differently perhaps to the way we were 20 years ago but equally that is the main selling point for the new employee, that they are going to be associated with that space with the purpose and the values of that space and it’s really, really important and so is their home because their home again is a reflection of who they are and in this sort of social media world where everything is you know, is, is communicable instantly.  It is vitally important for that generation that their purpose and their values are their own.

Matilda Jacobs 
How do you make sure that we deliver on the E and the S when we are talking about housing that is not in urban areas, that’s in more rural areas where land values are lower, the need for affordable housing is really high from a social need perspective but then the ability to deliver the technologies can actually make it prohibitively expensive or to use brownfield sites can make it expensive.  What do you guys see as the ways around that?

Basil Demeroutis 
I think that’s where the innovation piece really, really comes in and we need to, we need to develop these solutions at scale and then roll them out and let regulation get out of our way.  You know, we found in terms of innovation, I mean there might be a commercial development 1 to 3 maybe 4% increase in cost to do things sustainably but actually when you dig beneath that number what you find is most of that is in compliance, in writing reports and various surveys, very little of that is in the innovation itself and actually the innovation is often cheaper and so I think it is a bit of a blind alley sometimes to think that innovation or local carbon solutions cost more you know, it’s the classic example you know, you put double glazing in it costs money but you have a boiler half the size or maybe not one at all so yes one thing might cost more but holistically the solution that you’ve come up with is actually very, very little more expensive if maybe not even cheaper.  So I think it’s a question of letting innovation happen unbridled and rolling it out.

Barry Jessup
I think what’s also important to say is that I think what you are describing there really is in effect regeneration.

Matilda Jacobs 
Yes.

Barry Jessup
So, and the key thing for me is housing is never regenerated anything ever.  Housing is there to support regeneration, it is usually created through employment or culture and, and the key in some of those locations, they will be very specific and be very local to those communities but I suspect the solution will be much more likely to be around employment or culture than it will around housing.  So the housing is necessary but it should only be there to support other aspects so if you think about the success of Margate recently for example with the art museum that opened down there and actually created a little sort of micro-economy and it’s really grown on the back of that and it is examples like that, that I think where Government intervention is welcome because that can help to create something very sustainable in the economic sense of the word.

Nicola Insley 

So that’s a sort of master plan in exercise.

Barry Jessup
I think it is listening to the community, I think mostly answers lie within the community if you give them the right opportunity to communicate properly with them is something that we try to do a lot in terms of engaging, it’s a massive part of our business because every community, even the ones that appear to be prosperous will have challenges and it is the ability to listen to what those are and trying to respond to those in every way we can is, is a key part of being a good developer.

Matilda Jacobs 
Absolutely and coming back to some of those incentives that you were talking about before, Nicola do you agree that those are the types of, would those incentives work?

Nicola Insley 
That’s an interesting question because when I was preparing for today I sat and had a think about well what could we actually do to set developers free and you know, enable that development to come forward and the first thing that I thought of was the same thing that Barry suggested about potentially reducing SDLT as a way through it.  But I guess that there are potentially other ways too, for example, grant funding to support delivery of some technologies particularly if you have got something big coming forward and you want a sustainable energy centre or something like that to support what you are doing on site, that could be supported by public money that’s generated through a system where perhaps people are paying more SDLT for buildings that are less green so I see that as a potential way through but there will be others too and definitely more carrot is required and less stick in the thinking around how to promote more sustainable development.

Basil Demeroutis
I think the other thing just to build on that is around refurbishment.  I think we have this perverse love affair with new build construction and if you look at some of the most innovative sustainable buildings being designed and built in London now they are all knocking down something old and I think that sometimes the appropriate solution but we also have to recognise that 80% of the buildings that will exist in 2050 our net zero carbon goal as a country have already been built and our own commitment here at FORE is to be net zero carbon by 2025 and so we recognise that actually refurbishment has a significant role to play in its if not as significant, it’s actually the dominant role to play and I don’t think we are talking enough about innovation through refurbishment.  It’s easy, I won’t say easy, it’s easier, a lot easier if you’ve got a brownfield or greenfield and you are building something new to build it out of CLT, cross laminate timber or come up with some bore hole solution to heating, it’s incredibly difficult if you’ve got a 20,000 square foot land locked building locked on three sides with no pavement outside, no common area, how are they going to deliver social and environmental outcomes in that building and guess what, that is the dominant stock in all of our cities across the country and indeed across most of the developed world so where is the innovation coming there and you look at policy and how policy can influence them and we talk about SDLT for sure, that’s one but how about VAT you know, it’s VAT on refurbishment repairs, 20%.  If I demolish that building zero rated so I get out you know, savings immediately off the bat from them knocking down the building and starting again.  I mean that just seems, seems illogical and it’s inconsistent with things like the London plan which again you read the London plan, its four hundred and fifty some odd pages.  The word carbon is mentioned over a hundred times in the London plan, that’s more than the world school, more than the word retail.  Think about that and how is that policy aligned with a framework where SDLT and financial incentives around VAT are trying to drive exactly the opposite behaviour.  It seems incredible.

Nicola Insley
The other aspect about that as well is that it supports the delivery of some of the social goals as well because you know the main goal of the planning system is around maintaining heritage and culture and through refurbishing existing buildings it is much easier to maintain heritage assets than it is if we knock them down.

Basil Demeroutis 
Yes and there’s this, there’s this presumption that new is better than refurbished old and we haven’t seen it you know, in our Windmill Green building in Manchester we achieved rents of £36 a foot against, against prime grade A new build £37.  We let half the building during lockdown, think about that, office space we rented out something like 40,000 square feet to three separate tenants when people couldn’t even leave their house.  Why?  Because people were attracted to the building, we were doing a similar scheme mentioned earlier, Tower Bridge Court, refurbishing a 1980’s concrete frame building.  These buildings are every bit as good and sometimes better than new build grade A so I think we’ve got a, we’ve got to consider the refurbishment option.

Barry Jessup
I think, I think that’s a really good point as well and if I can just build on that sort of metaphorically and almost physically because we’ve got a scheme in Milton Keynes where we are doing exactly as Basil has just suggested, it’s a… and the heritage question is a really interesting one.  So two existing schemes that sort of provide an example to that, one is as I say works in Bristol where we are opening for the public the first time a soap, it’s an old soap factory called the Soap Pan building and we are going to have some co-work in there, we are going to have a food court etcetera and opening that for the first time and that already in Bristol is a buzz word for the next new place because people love the heritage of the building but what is interesting is not just some times the buildings and the architecture that is important to these locations, in Milton Keynes the scheme we’ve got there working in close collaboration with the local Council is… has an existing office building called Saxon Court, now we are stripping that back to frame and building on top of it entirely redesigning the scheme above it so it will look very, very different but maintaining that original you know, core of the building was very, very important locally because that building has been there almost since the beginning of Milton Keynes and so the fact that we are building on what was there before and not starting again I think gives people a real emotional attachment and I don’t think we should ever underestimate the importance of that.

Matilda Jacobs 
I agree and I think it’s you know, it’s a question that a lot of the great estates, estates are tackling is how to keep the heritage of their, if you know Chelsea or wherever it is, Marylebone but also looking at retro fit and refurb.  Are there lessons that we could be taking from other countries, are other countries better at refurb?  Is it something that’s considered more elsewhere?

Barry Jessup
I’ve got a great example, it’s one of my personal sort of ambitions to try and achieve this because there were some restrictions about what we are talking about as well so and we will perhaps talk about those in a moment in terms of warranties and insurance etcetera which makes it more difficult, again another area I think that the Government could step in but we still have this obsession in this country, we are definitely moving towards mixed use development being a good thing and just to be clear, when I say mixed use development, I don’t mean a residential tower with Tesco Metro on the ground floor, that’s not mixed use development so a genuine mix of employment, cultural and, and living uses is what I am describing but still the investment market hasn’t entirely caught up so what you end up doing at the end of those, of those developments is usually splitting them up and so with a different investor owning different parts of, of the scheme.  That’s disappointing for me because you don’t then if you do that allow the estate, if you want to call it that, and reference to what you were just talking about, to be renewed to keep fresh in time.  Now what’s interesting in the US is a slightly different setup and I have been to see a number of what I describe as multiple use buildings so where under a single ownership you could have residential, you could have co-work, you might have some retail.  One of my favourite ones in St Louis has got a design museum on the ground floor and it has got this fabulous sort of play, so almost like a play arena on the, on the roof and I think they are much more flexible in the US in terms of how they look at the investment structure for some of these buildings and I think that’s something that I think will change in the UK and when it does, I think it will allow us to repurpose those buildings and create some fantastic assets.

Matilda Jacobs 
As an investor Basil, do you agree with the kind of notion that for too long we have ended up with investors taking over different parts of developments?

Basil Demeroutis 
Yeah I think that’s probably true.  As Barry was talking there I was thinking also about the valuation conundrum because I think the valuation industry which is a kind of a regulation in some ways unto itself needs to play catch-up because they don’t really value buildings the way that we as a long-term investor, investor would be it mixed use or indeed even just the type of tenants and occupiers that are in the buildings you know, I think historically as an industry for far too long we valued a 20 year stable lease and single let building to a FTSE 100 company, we all know that over the last 20 years the, the number of FTSE 100 companies has change by more than 80-85% so I think that they are not quite as stable income streams as one might think and query whether you would rather have that kind of a big corporate which can turn on 37.08 diamond leave and sublet the building and impair your value through, through the back door or whether you want to be in bed with a tenant that’s on the innovation scale, that’s creating new jobs, that’s high growth, that’s in the economy of tomorrow, yeah you might have individual blow up risk from, from one or two of them but I think on the whole I would prefer the latter than the former.  The valuation industry is, is inverted.

Matilda Jacobs 
Are there reasons just going back to what you were saying about the more flexible approach in the US, why do you think it is that they’ve got a slightly different mind-set?

Barry Jessup
I can’t really answer that, I am not sure, I can certainly comment on the UK sector and perhaps why, it’s exactly the reasons that Basil’s just outlined, I think it’s around you know, frankly the desire for most investors or asset managers to frankly do as little as possible historically, I think that’s changing, I think that’s really important as I think most asset managers and investors now realise they have to take a proactive view of their developments and their assets.  That has to be the right thing so hopefully the, you know, the 20 year lease where you basically just collected the cheque on a quarterly basis is kind of in the past and I think that’s a good thing because you are going to have much more attention on you know, refurbishing your building on… it’s interesting, even as a developer I think we see ourselves as much more than just you know, the builder of spaces.  I think we are really there to create the places that people want to live in and that’s I think now being transferred into those, those investors, that has to be a good thing.  So it’s exciting.

Matilda Jacobs 
And the investment industry I agree, there’s a light but it is starting to move in the right direction.  I have seen that myself in terms of I have had clients who’ve expressed frustration to me because they haven’t been able to find the things that they wanted to put their money in that served the particular social goal or environmental goal that they want to be seen to achieve as an organisation but I think that is something that has really altered in the last maybe two to three years where those opportunities are beginning to arise and as demand arises and those opportunities grow, that to me is likely to have a snowball effect which will result in some momentum building behind that.  My concern though is whether that will happen fast enough in order to deliver on those overriding goals that we are trying to achieve.

Barry Jessup 
I think that’s right but I think what’s interesting for me is that a lot of investors are now almost through the back door having to embrace some of these challenges so you know, a great example is shopping centres.  So you know, often owned by pension funds or insurance companies and suddenly now they are having to take a totally different view of those and some of those are being sold but some of them are being repurposed and redesigned and so there is much more of a proactive response and I think as a consequence you know, those developments will create much more social value and actually I think will be much more sustainable by being repurposed than they would be by being flattened and, and started again.  Our scheme in Cambridge is with Railpen, railway pension fund and what is interesting with those guys, again massive, massive focus on sustainability so really a key part of what they do and you know so when we are designing the scheme and thinking about the long… and that is a long-term unclear 40.27 scheme that they are going to hold so residential and office and bars and restaurants and there is a crèche etcetera, they are going to hold all of that long-term so that is an example of a shift in mentality that I think will be very helpful.

Matilda Jacobs
And some of this has been seen during the pandemic as well hasn’t it because there is examples of shopping centres for example, the Grafton Centre being used as a Covid vaccination centre and cinemas being used as Covid vaccination centres where there has been a need to make them flex in order to meet the requirements of society at the time and that’s actually beneficial for those places too because becoming deserted and lacking footfall and lacking attention is not what any building developer or person who experiences that place needs.

Basil Demeroutis 
And I think what’s, what’s an interesting observation from that and definitely Covid has, has fostered that kind of innovation and allowed people to test and experiment in a way where they weren’t prepared to do before for fear of failure.  None of that happened with regulation.  We opened up a building that we owned in Bermondsey as overflow housing for NHS staff and we had 28 NHS workers in there.  No one told us to do that, no one knew for example about the shopping centres, no one told people to innovate.  So I think regulation, just back to theme of regulation, it’s got to be, it’s got to get out of the way of innovation, it’s got to set some clear boundaries, set the guard rails and then get out of the way.

Matilda Jacobs 
Thinking about some of the other techniques that have been talked about at the moment, more modular construction, other modern methods of construction.  Is our regulatory or policy landscape able to accommodate those new types of innovative techniques?

Basil Demeroutis 
I think innovation in materials is a huge topic and we spend a fair amount of time even though we are an investor owner, we spend a lot of time thinking about materials and how do we procure better and drive innovation in the supply chain you know, it’s the classic if, if concrete was a country, it would be third worst emitter globally of CO2, steel would be the fourth worst emitter after US and China.  So we are spending a lot of time with the supply chain figuring out how does steel get made, where is the steel that is going into our building coming from, how much recycled content in it, not taking things at face value when glass manufacturers say that they’ve got 32% recycled content glass, challenging them until we realise that actually only 3% is post-consumer recycled.  I mean this is what I meant, you’ve got to become an expert in so many different areas so I think in materials it’s… the supply chains are complicated in centres are sometimes misaligned throughout the supply chain and as an investor you are so far removed from the end producer of the thing that is going into your building, it’s hard for the big firms that we compete with often to, to drive innovation because they are just too far removed from the, from where their materials are coming from.

Barry Jessup 
Yeah and I think that’s exactly right, I mean the real estate sector let’s not kid ourselves, is an oil tanker that takes a very, very long time to turn and is very, very risk averse and typically having said what we said previously about you know, allowing us to innovate, I think the majority of people tend to just revert back to what they were doing before so that is where I think some elements of you know tax incentivisation you could definitely work around you know, for example, having a tiered tax structure around you know, the quantum of recycled steel or in terms of innovative concrete solutions etcetera.  There’s an ability there I think to incentivise economically developers and contractors and investors to look in the right direction for those.  Equally there are challenges so I, we you know, we embraced MMC again back about 20 years ago, early noughties, bringing a lot of the design experience we have from the commercial sector into the residential sector.  That’s actually got harder, not easier in the last 20 years through changes in regulation and through changes in, in concerns around you know, warranties and insurance and I think on the back of Grenfell, now timber is much harder to use as a, as a lower carbon design solution and I think it is in aspects like that that I would really welcome Government intervention so the ability, for example, it’s almost impossible to insure buildings, timber buildings at the moment and we explored using timber much more than we currently are on our scheme in Cambridge as a for instance, it was very, very clear from the market that we weren’t going to get the right level of insurance in place to allow us to do that so we have had to back off what we wanted to do.  So there are some examples there of where I think there could be more intervention and that would really help to drive innovation not stymie it.

Basil Demeroutis 
Yeah I think timber is a great one and we’d love to use more timber in our buildings and we’ve explored it in Hammersmith and London, Tower Bridge and other places but actually one of the road blocks is not only insurance but it’s testing so the current regimes say that you’ve got to test your exact thing that you are putting into the building.  So if you’ve got a 25 centimetre section or a 30 centimetre section or its square, it’s round or triangular.  You have to test that exact one with the coatings, with the glue, with the everything and so there is no standardisation of product and so what’s happening actually is not only is the insurance an impediment but actually the testing labs, there’s not enough capacity in testing labs to test all these samples and then once you’ve tested, then you are locked into using that from that supplier, through that supply chain, in that shape, in that size, in that part of the building and if you have to change, it is really back to square one.

Matilda Jacobs 
The other aspect on modern construction methods as well comes down to the Government’s new ideas about a campaign for beauty and delivering beauty through design in new development and in refurbished schemes and do you think there is any issues in terms of delivering on what your trying to do in terms of ESG and achieving that sort of culture benefit that you get from being in a place that you find aesthetically pleasing?

Barry Jessup
Look it’s a massively important aspect of any development and sort of design and the aesthetics and the place you create but I think the idea of having any sort of top down sort of design push, I mean fills me full of horror that it’s been written, written by some civil servants.  I think you know, the London plan is very well meaning in that regard but again I think we are increasingly seeing that every new residential development in London looks exactly the same and I think that’s partly, that’s been partly driven by the London plan and some of the design criteria that’s been, being pushed down and, and local planning officers now just assume that unless it’s a brick building it’s not a good building which is of course nonsense so I, I think design and good quality aesthetics really should be left in the hands of the local you know, property makers because they are the people who are going to make those decisions.

Basil Demeroutis 
And if you design an ugly building it won’t sell.

Barry Jessup
That should be the incentive.

Nicola Insley
That’s interesting because in the current planning white paper they are actually saying that we are going have an area design codes which sort of stipulate what buildings are going to look like both in terms of height, landscaping within a particular geographical area.  That sounds to me like the absolute opposite of what is required by you guys?

Basil Demeroutis 
Yeah I mean I can’t think of anything I’d rather not see, you know, that’s the problem isn’t it you know, manufacturers manufacture stuff like shoes and policy makers manufacture policy and they can’t help themselves from manufacturing policy so I’d like them to all take a long holiday and go focus on something else and yeah, not try and prescribe aesthetics.

Barry Jessup 
What they are trying to do is well meaning but it’s really ill thought through so what they are trying to do is really set a bench, like I talked about earlier, a low bench mark that everybody has to clear but what you are really doing is you are not punishing the, the bad developers who then have just got a very simple sort of, well this is what I need to build so, and there is no imagination or creativity, they just take it directly from the policy.  The, the developers you are really punishing are the good developers, the buys who are being innovative and are thinking about you know, interesting architecture and those are the guys that won’t have the flexibility to create the great places we will always remember.  We are not going to remember these you know, brick based, you know residential blocks that are being built in London at the moment, they are just not memorable and we can’t, we really shouldn’t be, I can’t say it strongly enough, allowing civil servants to, to dictate design.

Basil Demeroutis 
I think we are entering a golden era for architecture and actually to be somewhat optimistic about things.  I think there is so much change in the way that we think about space, our city centres are being transformed, some obviously through, through Covid and other, and other social and economic reasons.  I think it is a golden opportunity to rethink and reshape our city centres and how we use them.  I think architecture historically has been a lot about connecting people with place.  I think the last year and a half has reminded us that actually we need to think about connecting people with people and that architecture kind of blends into the background.  I am super excited about, about the way that our cities are going to look in ten or twenty years and I wouldn’t want anything to really get in the way of that, that golden era that we are upon.

Matilda Jacobs 
That’s interesting because the aim of having these design codes is actually to make development happen quicker to meet a perceived demand of the development industry that the planning system is too slow.  You know, we have already discussed about how the planning system can be too slow to get us where we want to be but clearly that’s not the kind of solution that you are looking for?

Basil Demeroutis 
Well if you look at what’s happening right now in the backlog in the planning, the planning pipeline, you could look at any, any scheme on a list of, of… that’s coming forward in London and, and be that innovative schemes like The Edge in Southwark and others, they are all stuck in the planning process, it’s not because that, that people can’t agree on what good looks like and what good design looks like, it’s because there is just not enough capacity in the planning system and it’s this mix of, of, of technical experts who generally speaking are actually quite good and, and lay people and how do we, how do we think about the interface of, of the technical with the political, with the, with the community.  It’s a complicated question and I think as I see it right now, the system is just, it’s like moving through treacle.

Matilda Jacobs 
So with COP26 coming up towards the end of this year, what would each of you like to ask the Government to do most?  Barry is sounds like yours might be to do with insurance?

Barry Jessup
Well I think from my perspective I think obviously that’s a global discussion forum isn’t it but I think certainly locally in the UK I would be looking at some tax incentivisation around let’s just call them for now, better materials and I would be looking for, we haven’t talked about innovation in the public sector and I think that’s, that’s really understated you know, there’s this myth that only the private sector innovates.  In fact most technology that has been created and we use today started off as a public sector innovation.  Apple built most of their technology based around public sector sort of research houses and I think that’s… going back to Basil’s point previously about testing etcetera, there’s a heap of stuff that the Government could be doing on that, that would allow products then to be signed off to make it much easier to use so that’s the second point and the third point would be around insurances, particularly around the use of timber etcetera where the Government has been very innovative over the last 12/15 months in terms of you know, stepping in and providing Governmental support where needed for businesses etcetera.  That’s a classic example of where I think they could do a lot of good.

Matilda Jacobs 
Nicola what about you, what would be the biggest change you would like to see?

Nicola Insley 
For me it’s all about emissions targets.  From Madrid there were quite a lot of countries that were still unable to commit to what we needed in order to maximise the rise in temperature at 1.5° and in order to facilitate those developing countries to do that there needs to be a financial incentive that is coming in from the more developed countries to support them in achieving those emissions targets so I think it’s a sort of tandem thing of people feeling confident to commit to the emissions targets we need in order to stop our world from getting too hot and then them being provided with adequate support from the rest of the world.  It is not a national problem, it’s a global problem and we need to look at it universally and I am hoping that Covid has taught us that we need to look at things beyond national borders because we can never get Covid free if other countries around the world are not fully vaccinated and I think exactly the same principle applies to climate change.

Matilda Jacobs
Completely agree with you.  And Basil, what are you looking for?

Basil Demeroutis
I think there’s so many things that, that could be fixed but I think if I were to pick one or two, it would certainly be around a clear and coherent regulation policy around what is net zero and I think that needs to be… the industry has done an amazing job by the way in trying to figure this out for ourselves and… but I think this now is a time that the Government needs to pick up what’s been done by the industry and come up with a single clear harmonised view of what is net zero and mandate that and mandate it quickly.  I think the other thing I would say is, is more better policy around refurbishment and to remove the disincentives for refurbishment versus new construction and I think there is a whole host of things that they could do in  that area.

Matilda Jacobs 
Perfect, well thank you all so much for joining us today, I’ve learnt a huge amount and it’s great to hear all of your stories about innovation in the sector.

This was the third episode of the Climate Crisis Challenge podcast with Mishcon de Reya.  Thank you to Nicola Insley, Basil Demeroutis and Barry Jessup.  I am Matilda Jacobs from Blackstock Consulting, thank you for listening and keep an eye out for episode four of Property Week’s series coming soon.

Mishcon de Reya is one of the lead partners on Property Week's Climate Crisis Challenge campaign. In the third episode of the campaign's podcast series, Mishcon de Reya planning Legal Director Nicola Insley considered the relationship between sustainability policy and real estate, alongside Basil Demeroutis, Managing Partner at real estate investment firm FORE Partnership, and Barry Jessup, Chief Executive of mixed-use developer First Base. Matilda Jacobs, Account Manager at Blackstock Consulting, moderated the discussion.

The panel covered a broad range of subjects, including the need to coordinate what has traditionally been a fragmented approach to regulation, why it is essential to consider each part of the ESG equation, and how the government can incentivise and encourage innovation around the retrofit and refurbishment of existing building stock.

Listen to the sustainable development podcast below.

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