BuildGreen 2021 Sustainable Development Report by Quarsis

THE 2021 SUSTAINABLE DEVELOPMENT REPORT 10 Year Review and Forecast for The Real Estate Market

© 2021 BuildGreen | All rights reserved. This document/email has been prepared by BuildGreen at the highest possible level of accuracy for general information. The information comprised in this document is based on studies conducted by BuildGreen and public data obtained from sources deemed reliable, according to the latest updates available at the time of publication. While every reasonable effort has been made to ensure its accuracy, BuildGreen makes no guarantees, representations or warranties of any kind and no responsibility is assumed for any inaccuracies. Readers are encouraged to consult professional advisors prior to acting on any of the material contained in this report. This publication represents the copyrighted property of BuildGreen. No part of this publication may be reproduced or transmitted without BuildGreen approval.

CONTENTS

FOREWORD

OVERVIEW

THE CLIMATE CHANGE CONTEXT

Property development as key pillar of sustainability

The 2030 Agenda

10 11 12

Green Deal

The Renovation Wave

COVID-19 impact

CARBON FOOTPRINT: THE WAY TO ACHIEVING NET ZERO

Ways towards carbon neutrality

Net zero carbon buildings

The role of net zero cities

SUSTAINABLE PROPERTY DEVELOPMENT

Green certifications

New building standards

Technical aspects

EVOLUTION OF SUSTAINABLE DEVELOPMENT IN ROMANIA: 2010-2021 MARKET REVIEW

THE BUILDGREEN STORY: 10 YEARS OF SUSTAINABLE DEVELOPMENT PRACTICES

New legislative requirements

FOREWORD The first decade of sustainable development practices in Romania set the ground for new perspectives on the upcoming decades. Climate change challenges, global sustainability goals and the green building practices lead to new legal requirements and business opportunities for propelling real estate development into a sustainable future.

The 2021 Sustainable Development Report

A DECADE OF MARKET TRANSFORMATION

Răzvan Nica

Founder & Managing Partner BuildGreen BuildGreen is leading consultant in the design, development and certification of sustainable buildings in Central and Eastern Europe. Founded in 2010, it was the first company in Romania to offer advisory services for green building and certification. The company stands out with the largest number of properties certified according to the LEED, BREEAM, WELL and EDGE schemes - over 200 real estate developments in CEE, from office buildings, shopping centers, logistics parks or industrial factories, to residential and public properties - totaling over 5 million m2 and €8 billion investment. In 2019, BuildGreen joined forces with green gain, one of the leading BREEAM consultans in the Czech Republic, thus becoming one of the largest and most experienced certification consultants in Central and Eastern Europe (CEE).

On the anniversary of over 10 years of BuildGreen existence in Romania, I would like to thank all our friends that engaged on such a memorable journey. I am honored to have been part of the first decade of “greening” the real estate market in Romania. Together with our partners – leading investors, developers and experts from all adjacent specialization – , we have been exploring new territories, putting innovation to work for higher building performance and efficiency, ascending to new levels of quality and sustainability in urban development, while laying the groundwork for a better living and working environment. It was a remarkable trip across virtually all market segments. We drew together a greener map of Romania. We are now embarking into a new decade of market transformation which comes with more challenging and refreshing opportunities: After a galvanizing 2020, sustainable development has taken a leading role in the global initiatives led by the largest governmental and environmental vectors worldwide. All stakeholders connected to real estate development are now facing a daring Call to Action: climate change initiatives, more rigorous sustainability standards, request for consistent and concrete steps for sustainable development, focus on energy efficiency and carbon neutrality, governmental financing plans dedicated to environmentally responsible projects, as well as new legal requirements. The next years will bring invigorating challenges, but also new routes of ascension. In order to help you analyze the current market conditions and future opportunities, we put the past and the future into our 2021 Sustainable Development Report, a 10 year review of sustainable practices in Romania, together with our perspective on the upcoming real estate market transformation. Challenging times give birth to the most empowering visions. I invite you to act now and join us in a new adventure towards sustainable property development.

10 Year Review and Forecast

FOREWORD From green building certifications as change agents, to a new era of real estate development, in which sustainability is not just a business tool, but a strategic pathway to climate neutrality.

1232

791 422

124

232

331

3 10

Number of certified developments in Central and Eastern Europe

The 2021 Sustainable Development Report

IT’S TIME TO UP THE ANTE

Andrew Caistor

Managing Partner, BuildGreen Founder & Managing Director green-grain merger with BuildGreen Andrew is an advocate of sustainable development and whilst much of his focus has been specific to BREEAM certification the emphasis has shifted to addressing the impacts of climate change. As the first BREEAM Assessor in Central & Eastern Europe, Andrew has contributed significantly to raising awareness of BREEAM among industry professionals. Andrew has been responsible for the certification of more than 150 new and existing buildings across 10 countries and has worked for some of the leading developers and asset managers in the region. The merger with BuildGreen is a natural progression following 8 years of close collaboration between two highly experienced BREEAM specialists.

In 2009, when I became the first licensed BREEAM Assessor in Central and Eastern Europe, BREEAM was a hard sell. Fast forward to 2021 and BREEAM needs no introduction. In this time I have witnessed a huge change in attitude among clients, design teams and contractors. Once considered to be a distraction, clients and design teams now recognize the benefits of sustainability methodologies and standards such as BREEAM and LEED and fully appreciate the need to engage with certification specialists as early as possible in the development process. I am thankful for the opportunity to have worked for some of the leading developers and asset managers in the region and alongside many forward-thinking industry professionals who share my enthusiasm for achieving a more sustainable built environment. Moving forward we are faced with even greater challenges. Climate change poses a significant challenge to our planet, our personal lives and our businesses. The industry needs to act now to meet these challenges head on. Not only must we focus on reducing operational energy consumption, we must consider the life cycle impact of materials used in the construction process in order to significantly reduce embodied energy. The global pandemic will also shift our approach to building design as we seek to reduce or eliminate the risks. Strategies are beginning to emerge which will have a major impact on the workplace, retail destinations, hotels, sports and leisure facilities etc. Dialogue and collaboration are essential to addressing the issues but this can only happen if teams are assembled with this in mind. To this end, we have made it our mission to further our reputation as a reliable partner based on a clear focus and understanding of the relevant issues and expert guidance to support a collaborative effort to find the solutions, delivered with enthusiasm and commitment.

10 Year Review and Forecast

OVERVIEW The past decades brought a whopping increase in sustainable development practices, but the ascent is just getting started. The next decades come with bold objectives and initiatives that envision higher development performance.

The History Of Sustainable Property Development Sustainable development practices cover a major part of today’s business development strategies across the real estate market. Several decades earlier, however, no such market approach really existed around the world. The sudden rise of green building principles was given by two major catalysts: The launch of BREEAM (Building Research Establishment Environmental Assessment Method) represented the first step, first published by the Building Research Establishment (BRE) in 1990. Initiated in the United Kingdom, BREEAM is now the world’s longest established method of assessing, rating and certifying the sustainability of buildings. To date, more than 594,000 buildings have been BREEAM-certified

and over 2.3 million are registered for certification – in 89 countries worldwide. A major increase was also seen in the United States starting with 1998, the founding year of LEED (Leadership in Energy and Environmental Design), the other widely used green building rating system across the globe. Nearly 180 countries and territories are using LEED. The adoption of sustainable methods over the next two decades reflects the timely merger of technology, property expertise and leadership to address compelling needs. The end of the first decade saw a troubling economy after the financial crisis of 2007-2008, which found many companies across the globe turning to green buildings as a hedge against risk and stiff competition. On the Romanian real-estate market, the impact of the economic downturn was strongly experienced starting with 2009. This year corresponds to the inception of sustainable development in Romania, as climate change and economic growth strategies represented main priorities. 2009 also corresponds to the increasing need of investors and developers for advisory services in building better and more efficient properties. BuildGreen was the first company in Romania to offer consultancy for the design, development and certification of sustainable buildings.

1990

Launch of BREEAM cer�ﬁca�on (UK)

First sustainable developments cer�ﬁed in Central and Eastern Europe (including Romania)

1998 Launch of LEED methodology (USA)

The 2021 Sustainable Development Report

2009

Reduc�on of EU’s greenhouse gas emissio to 55% (Green Deal target)

2030

The European Green Deal

2020

The Paris Agreement & UN 2030 Agenda

2015

2050 EU to become climate neutral

Initially used as an effective marketing tool by office developers, sustainable building practices and green certifications slowly became the standard in all market segments in Romania. Its role grew to quality monitoring tools towards increased efficiency and asset value. On the other side, sustainability attracted an increasing number of tenants and building occupants, through cost savings and better health & well-being indoor environment. 2015 was a landmark year for international policy dedicated to sustainable development and climate change, concreted by the adoption of two major agreements: The Paris Agreement on Climate Change and the UN 2030 Agenda on Sustainable Development. Flanked by these strategic global growth pillars, real estate entered the spotlight as key agent of sustainability, with buildings and the urban environment at the backbone of social and economic evolution.

Going further, 2020 brought a well expected Pan-European decision that brought clarity into EU’s commitment to global climate action under the Paris Agreement. The European Commission launched Green Deal, a new growth strategy aimed at making EU the first climate neutral continent in the world. The objective is to reach zero net emissions of greenhouse gases by 2050. Just looking at the statistics, the following decade will provide a solid and effervescent attention to sustainable property development. The following report explores the context and future of sustainable development in Romania: covering the vast impact of green building – BREEAM and LEED as change agents – , taking a glimpse into emerging issues as the market matured and crossing the threshold in a new era of real estate development, in which sustainability is no longer a tool, but a strategic direction.

10 Year Review and Forecast

1. THE CLIMATE CHANGE CONTEXT Our world as we know it is undergoing major changes and the future of property development sets higher sustainability standards, flanked by new legal requirements, as well as new business opportunities.

The 2021 Sustainable Development Report

THE CLIMATE CHANGE CONTEXT

Zero net emissions of greenhouse gases by 2050 is the objective at the heart of the European Green Deal.

PROPERTY DEVELOPMENT AS KEY PILLAR OF SUSTAINABILITY The European Union aims to reach climate neutrality by 2050 and the European Green Deal represents the plan to make EU’s economy sustainable, by turning climate and environmental challenges into opportunities. Moreover, the Green Deal has become a critical vehicle for achieving global growth strategies, being directly connected to the United Nations Sustainable Development Goals and the response to COVID-19 pandemic. Significant investment is required from both the European Union and the national public and private sector. All parts of society and economic sectors will be involved – from the power sector to industry, mobility, agriculture and forestry – and, of course, buildings.

40%

Air Quality

• Buildings and Construction account for 40% of energy related CO² emissions across Europe. • The annual mean air temperature of a city with 1 million people or more can be 1–3°C warmer than its surroundings. In the evening, the difference can be as high as 12°C. Heat islands can increase summertime peak energy demand, air conditioning costs, air pollution and greenhouse gas emissions

48%

Materials and Waste

Contrary to public perceptions, it is the built environment that generates the most greenhouse gas (GHG) emissions—nearly half of all emissions when operational and embodied energy uses are added to the calculations. By including energy use from industrial buildings plus energy embodied in construction materials, the building sector’s role in climate change obtains a completely different snapshot. Therefore, property development will play a major role in the Green Deal action plan. Being one step ahead will provide real estate developers and investors with key market differentiators and concrete economic benefits.

13%

Water Use

• Building occupants use over 10% of the total water consumed per day. Of that total, 1/4 is used by commercial building occupants and the remaining 3/4 by homeowners. Population growth issues +150% water usage demand. • Over 15% of indoor household water use are faucets. A leaking faucet wastes kilograms of water in a short period of time. A leaky toilet wastes 200 kg of water per day.

100

Indoor & Outdoor Environment

• Sources of the building-related debris waste stream include demolition (48% of the waste stream per year), renovation (44%) and new construction (8%).

• Indoor levels of pollutants may be 2 to 5 times higher, and occasionally more than 100 times higher, than outdoor levels.

• 20% - 30% of building-related C&D debris is recovered for processing and recycling. Concrete, asphalt, metals, and wood are most frequently recovered and recycled.

• Indoor pollutants: combustion sources, building materials, furnishing, cleaning and maintenance, central heating and cooling systems, humidifiers. Outdoor: radon, pesticides, air pollution.

• 11% of existing EU buildings are renovated each year. But most renovations do not address energy performance, so the energy renovation rate is stuck at 1%.

• Daylighting, ventilation and natural landscapes in green buildings enhance worker productivity, health and well-being (Kats 2010).

10 Year Review and Forecast

THE CLIMATE CHANGE CONTEXT

THE 2030 AGENDA Adopted by all United Nations Member States in 2015, the 17 Sustainable Development Goals—also called SDGs, Global Goals or The 2030 Agenda—have 169 targets that countries are attempting to reach by 2030. The goals require action on all fronts—governments, businesses, civil society. A low-carbon economy, in line with the Paris Agreement, represent a key priority in virtually all of SDGs. The European Green Deal could provide the way forward to environmental sustainability, to the achievement of the SDGs and the objectives of the Paris Agreement. Green certification measures align to multiple sustainability objectives, with the UN’s Sustainable Development Goals being the foundational framework on the global stage.

SIX PRIORITY SDG TRANSFORMATIONS INSIDE THE EU • Education, Skills and Innovation: Ensure top quality and strengthen innovation in strategic technologies and industries. • Sustainable Energy: Promote energy efficiency, achieve zero-carbon power generation, decarbonize industry and create new jobs. • Sustainable Communities, Mobility and Housing: Strengthen cities and other communities by promoting sustainable and smart mobility, renovating housing, ensuring sustainable building standards and supporting new jobs. • Sustainable Food Production, Healthy Diets and Biodiversity Production: Ensure sustainable agriculture and ocean use, promote healthier diets and behaviours, and protect and restore biodiversity and ecosystems with decent incomes for farmers and fishermen. • Clean and Circular Economy with Zero Pollution: Curb pollution, reduce material consumption and minimize the environmental impact of European industry and consumers. • The Digital Transformation: Build cutting-edge digital infrastructure, strengthen innovation and protect citizen’s rights to their data and European democracy.

HOW GREEN BUILDINGS HELP

The 2021 Sustainable Development Report

10 Year Review and Forecast

THE CLIMATE CHANGE CONTEXT

“The European Green Deal is Europe’s new growth strategy. We have to act now!” Ursula von der Leyen, President of the European Commission.

GREEN DEAL Last year, as part of the European Green Deal aimed at reaching climate neutrality by 2050, the European Commission increased the climate target for 2030: at least 55% reduction of greenhouse gas emission. The actions required cover all sectors, including increased energy efficiency and renewable energy. Key targets for 2030: • At least 40% cuts in GHG emissions (from 1990 levels) • At least 32% share for renewable energy • At least 32.5% improvement in energy efficiency The three objectives above and relevant policy instruments are now being updated in order to reach the new EU targets. Detailed proposals to implement are expected in June 2021. In Romania, new rules for the construction market have already been established: As of 2021, all new private buildings - from individual dwellings, multifamily blocks,

office buildings or other types of commercial properties – must have net zero energy consumption, ensured mostly from renewable energy sources, but also through a high degree of energy efficiency. For public buildings, this obligation was already valid since the end of 2018. Reaching them will require action by all economic sectors: investing in environmental-friendly technologies, supporting industry to innovate, rolling out cleaner, cheaper and healthier forms of private and public transport, decarbonising the energy sector, ensuring buildings are more energy efficient and working with international partners to improve global environmental standards. The European Green Deal Investment Plan, also known as the Sustainable Europe Investment Plan, combines legislative and non-legislative initiatives. The target is to mobilize at least €1 trillion of investments over the next 10 years and to put sustainability at the heart of investment decisions across all sectors.

SOLUTIONS TO REACH GREEN DEAL TARGETS

30%

€

30% of the €1.8 trillion EU budget (for the 2021-2027 period) towards climate-related actions.

EU BUDGET

75% of EU’s greenhouse gas emissions are generated by the production and use of energy.

+40%

25%

BUILDINGS

MOBILITY

Renovate buildings, to help people cut their energy bills and energy use. Over 40% of energy consumption is by buildings.

75%

2030

12%

Support industry to innovate and to become global leaders in the green economy.

Decarbonize the energy sector. 75% of EU’s greenhouse gas emissions are generated by the production and use of energy. SOURCE: European Commission The 2021 Sustainable Development Report

25% of GHG emissions come from transport.

INDUSTRY

ENERGY

Roll out cleaner, cheaper and healthier forms of private and public transportation.

European industry only uses 12% recycled materials.

THE CLIMATE CHANGE CONTEXT

THE RENOVATION WAVE Part of the Green Deal action plan, the “Renovation Wave” introduces mandatory minimum energy performance standards for existing European buildings. The objective is to at least double the annual energy renovation rate of buildings by 2030. The construction, use and renovation of buildings require significant amounts of energy and resources, such as sand, gravel and cement.

Over 40% of EU’s energy consumption comes from buildings. Most of today’s buildings will still be in use in 2050 - which will counter EU’s green goals unless they are upgraded. The aim is to incentivize building owners to upgrade properties in time to meet the new standards, backed by financial support from sources including EU’s €750 billion coronavirus economic recovery fund.

THE PATH TO BETTER ENERGY PERFORMANCE OF BUILDINGS

75%

Three quarters of Europe’s buildings are ENERGY INEFFICIENT by modern standards and many are heated using fossil fuels. They are responsible for MORE THAN A THIRD of EU carbon dioxide emissions and making them more efficient is a key part of the EU’s plans to REACH NET ZERO EMISSIONS by 2050.

35mn

11%

11% of existing buildings in the EU are renovated each year. But most renovations do not address energy performance and the EU’s energy renovation rate is stuck at 1%.

The Commission PLANS TO DOUBLE the EU’s annual rate of energy-related building renovations, which is currently just 1%, upgrading 35 million buildings by 2030. Particular attention will be paid to the renovation of social housing, schools and hospitals.

HOW

€ Prices of different energy sources should incentivize energy-efficient buildings

Design of buildings should be in line with the circular economy

Increased digitalization

More climate-proofing of buildings

Strict enforcement of rules on energy performance of buildings

10 Year Review and Forecast

THE CLIMATE CHANGE CONTEXT

COVID-19 IMPACT The COVID-19 pandemic caused an unprecedented public health crisis and the most significant shock wave since the Great Depression, exposing weaknesses in economy and society. A healthy productive internal environment became a key priority in building design, development and maintenance, as concerns regarding COVID-19 accelerate across the globe. Governments and industry leaders are working on policies, stimuli and investments needed to expedite recovery. If done correctly, these can be used to support the design, construction and operation of assets to deliver a cleaner, healthier, more equitable built environment.

Investment Path

Constructions

Meeting the Sustainable Development Goals of the European Union, in the face of the COVID-19 pandemic, the European Commission set new pandemic financial packages, with environment, resource and energy efficiency as key areas of focus. EU leaders agreed on a €750 billion recovery effort, Next Generation EU, to help the EU tackle the crisis caused by the pandemic. Alongside the recovery package, a €1 074.3 billion longterm EU budget for 2021-2027 was approved, leading to a total financing budget of €1824.3 billion. EU leaders tie these funds to the Green Deal higher climate ambitions for 2030 and an impressive 30% will be allocated towards climate-related spending. This new financial plan is expected to have a green impact on CEE countries, adding support and opportunities for investors, as well as regulations that will increase sustainability standards. Romania attracted € 80 bn in extra capital for the next years, one third of the country’s GDP, creating a significant economic advantage if managed correctly.

In Romania, the construction sector was among the few that continued their activity during the official state of emergency, mainly due to the fact that most activities take place outdoors. In the case of advanced projects, with finishes or specific interior works, the social distance norms led to small delays, but without significant changes.

Significant budget allocationsare expected to focus on renewable energy and energy savings, supplying clean, affordable and secure energy, as well as building and renovating in an energy- and resource-efficient way.

The technical aspects accelerated by the COVID-19 include energy performance increase, a spontaneous digitalization imposed by social distancing and safety requirements, new hygiene and safety protocols, restructuring of the working spaces and the need for new, more efficient technologies in exchange of the ones previously integrated.

Renewable-energy companies and insulation providers already had a significant growth in 2020, in contrast to the plunge in oil-and-gas companies. Buildings are a priority, as they are responsible for at least 40% of carbon-dioxide emissions, according to the European Commission data based on Eurostat statistics. Other sources mention over 50% if other development processes or resources are also taken into consideration.

The 2021 Sustainable Development Report

Strictly in terms of construction activities, the next period will not face significant modifications. Changes will appear in terms of project specifications, especially installations - ventilation and air conditioning. Builders and investors will need to pay more attention to compliance with the rules of social distance and other measures imposed by the authorities. New developments will have to respect and align with the new requirements and standards, which will influence the construction market - but in itself, it will not undergo extensive changes.

The construction sector, especially in the commercial segment, has undergone many changes in the past decade, constantly adopting new technologies and equipment according to sustainable development certification criteria, which led to increased project quality. Therefore, the new requirements will be easily implemented.

THE CLIMATE CHANGE CONTEXT

Certifications Another big change that came out of the COVID-19 pandemic, with deep ramifications for various real estate sectors, is the rise of specific Health & Well-Being certification standards. Certifications such as WELL or the IMMUNE Building Standard have attracted an increasing interest from both developers and occupiers. The existing sustainable development standards

imposed by the BREEAM and LEED methodologies helped in building back better and provided solutions for the green recovery in terms of Net Zero Carbon, Circular Economy, Health, Social Impact, Resilience, Natural Environment and Quality and Whole Life Performance. Air quality, water quality and dedicated storage spaces are the priority criteria registered during the certification processes that took place in the past year. In addition, while BREEAM was already allocating 1 specific credit to buildings that provided a suitable space for work from home, LEED introduced 4 new Safety First Pilot Credits.

10 Year Review and Forecast

2. CARBON FOOTPRINT TOWARDS NEUTRALITY Carbon neutrality refers to achieving Net Zero CO2 emissions by balancing CO2 emissions with removal (often through carbon offsetting) or simply eliminating them altogether (the transition to the “post-carbon economy”). EU pathways to achieve climate neutrality represent opportunities for sustainable property development, by taking actions to reduce carbon footprint and achieve carbon neutrality through a cost-effective combination of internal emissions reductions and the use of external environmental instruments.

The 2021 Sustainable Development Report

THE CLIMATE CHANGE CONTEXT

WAYS TOWARDS CARBON NEUTRALITY

Efficiency - minimizing demand on resources and infrastructure

Ultra-eﬃcient Buildings

Efficient windows and walls

Flexible loads and distribute generation and storage

Efficient - digitally enabled buildings with analytics to optimize efficiency, flexibility and user preferences HVAC control zones

Solar and storage

Lighting controls Energy management systems Smart thermostats

Digitalized, integrated systems E-mobility

Window shading

Vehicle to grid

Appliance controls

Clean electriﬁca�on and decarboniza�on

Smart energy infrastructure

Source: Net Zero Carbon Cities: An Integrated Approach” World Economic Forum - JANUARY 2021

Reduction of GHG emissions:

Pushing zero-carbon energy carriers and relying on CO₂

•

Maximize the benefits of energy efficiency,

removal technologies

including zero emission buildings

•

Reap the full benefits of bioeconomy and create

•

Tackle remaining CO₂ emissions with Carbon

•

Maximize the deployment of renewables and the use of electricity to fully decarbonize energy supply

•

Embrace clean, safe and connected mobility

•

A competitive EU industry and the circular economy

•

essential carbon sinks Capture and Storage (CCS) •

Focus more on the impact of a circular economy

as a key enabler to reduce GHG emissions.

in a world in which customer choices become less

Develop an adequate smart network infrastructure

carbon intensive. It has more scope to strengthen

and interconnections

the land use sink and needs to rely less on CO₂ removal technologies to balancee out remaining emissions.

10 Year Review and Forecast

THE CLIMATE CHANGE CONTEXT

NET ZERO CARBON BUILDINGS Being highly energy efficient and fully powered from on-site and/or off-site renewable energy sources, Net Zero Energy Buildings (NZEB) represent today the key path to sustainable development – both from an environmental and economic perspective. However, 10 years ago they represented visionary and innovative solutions, as a set of initiatives dedicated to environmental protection were searching for solutions towards sustainable property development. Given the evolution of sustainable building practices and the ascent of high rating levels for new properties developed in Romania, we see increased interest from commercial property owners and developers in reaching the EU Green Deal targets earlier than 2050. Therefore, we are optimistic that a high number of existing properties built between 2010-2020 in Romania will reach net zero carbon by 2025 with a limited technical adaptation measures and reduced impact over their budget. This trend will have an accelerated growth towards 2030. Furthermore, all new class A properties to be built as of 2021 which implement also sustainability certification will be aligned to net zero carbon strategy. The challenge is represented by existing public and private properties, as well as commercial properties built before the “green certifications” era. In both situations, the renovation of old buildings in order to bring them up to the nZEB standard is crucial, as they represent the largest share of the European real estate landscape. In order to complete such ambition, the whole construction industry will need to be equipped with the necessary knowledge and skills.

The good news EU’s GHG emissions are decreasing in the majority of sectors, given the strict regulations imposed to reduce CO2 emissions and increase energy efficiency. Residential and commercial buildings and waste management had a significant contribution to the positive trend, while energy supply and industry saw the largest decrease. Romania is the European country with the 3rd smallest level of GHG emissions* *Eurostat analysis available at the date of report publication, based on information provided by the European Environment Agency.

The 2021 Sustainable Development Report

The Public Sector Good signs are already coming from public properties, as national and local authorities slowly start to implement carbon neutrality strategies, as dedicated legislation has already been established. 2020 brought such an example, the energy efficiency program of public buildings being implemented in several schools in Bucharest. The project follows the implementation of solutions for the construction of NZEB type buildings, which will increase the energy performance of schools, reduce energy consumption for heating, hot water consumption, lighting, ventilation and cooling. These low energy consumptions lead to low CO2 emissions.

Commercial Properties The principles of NZEB development have been implemented for several years through the criteria imposed by the BREEAM and LEED methodologies. These two standards on sustainable development are already not only a norm, but also a very useful tool for developers to streamline energy consumption and reduce costs during the operation of buildings. Given the new objectives included in the European Green Pact (Green Deal), the role of certifications extends to that of an instrument for achieving NZEB objectives and neutralizing the carbon footprint - even more as a plan to implement these targets is still working at the level of the European Commission. In the first quarter of 2021 we noticed a growing interest, especially in the area of residential projects, to align with the new requirements and from our analysis we believe that they will have a significant impact on budgets. Design and execution budgets will certainly be affected, but in the long run the implementation of these requirements will lead to lower operational costs. How these costs will be distributed is still a matter of discussion, but we believe that they will be partially found in the final cost. Therefore, the next 10 years will bring two categories of products - pre and post NZEB, and the final customer will be able to choose based on a reasonable price and quality difference. Besides other decision makers, the end-users will choose superior energy performance.

THE CLIMATE CHANGE CONTEXT

THE ROLE OF NET ZERO CITIES The past decade transformed urbanization into a key megatrend driving global economic growth. Investment in critical infrastructure, green policies, citizen well-being and smart-city technology have already been addressing the question of how to make our urban environment safe and resilient in the face of climate change and accelerated population growth. Empowering companies to solve key urban issues, while ensuring a focus on corporate social responsibility, represented one of the main aspects included in virtually all Global, European or local sustainability strategies launched in the past decade. Real estate companies, in particular, stand in the spotlight. Starting with March 2020, as the COVID-19 pandemic spread across Europe, the level of company involvement increased, through higher sustainability targets to be included in their business development strategies (in line with Green Deal) or stronger legal requirements for sustainable development (already implemented as of 2021). Sustainable development standards included in the green certification methodologies will help companies in this direction, as all required criteria is directly connected to calculating and reducing carbon footprint. For example, a result of green certification criteria, involving a set of solutions that improve air quality and healthy living conditions on an urban level, can be seen in the cases of London, Berlin or Milan, which led to the creation of ultra-low emission areas.

Did you know? Globally, CO₂ emissions have doubled since 2000 and will continue to rise due to population and economic growth. As the population grows, so does new construction, resulting in even higher energy consumption and carbon emissions generated by cities. To keep global temperature increases to 1.5°C or below, cities have to achieve net-zero emissions by 2050.

70%

CO₂ 73%

Cities cover a minimal area of the earth’s land surface. However, they create more than two-thirds of all carbon emissions, mainly from buildings, energy and transport.

Energy consumption is responsible for almost ¾ of GHG emissions worldwide.

54% 40% Buildings and Construction account for at least 40% of energy related CO2 emissions.

78% Percentage of the world’s primary energy that is consumed by cities.

68% 2050

More than half of all people live in cities – a percentage that is projected to rise to over two-thirds by 2050, according to the World Economic Forum reports.

10 Year Review and Forecast

3. SUSTAINABLE PROPERTY DEVELOPMENT Over the next 40 years, the world is expected to build 230 billion m2 of new construction – adding the equivalent of Paris to the planet every single week (source: LETI Climate Emergency Design Guide - January 2020)

The 2021 Sustainable Development Report

SUSTAINABLE PROPERTY DEVELOPMENT

GREEN CERTIFICATIONS With so much attention being drawn towards well-being and the environmental impact of economic development, forward-thinking companies and individuals are developing new ways to solve global needs through buildings and to identify development opportunities. Among the different approaches and tactics that are being applied in order to describe, quantify and control these impacts, the most influential ones are sustainable building standards and certification methodologies accompanied by the new regulation worldwide for the building industry. Therefore, the role of green certifications withnessed a significant evolution, since their introduction in Romania: from an useful marketing tool (especially for office

buildings), to a quality and performance monitoring tool and, now, a strategic tool for commercial property owners in reaching carbon neutrality. The practices behind green certifications now enter the viewfinder of public buildings, as the new governmental legislation obliges all buildings to NZEB practices and stricter sustainability standards - the most relevant example being the renovation of several public schools in Bucharest, in order to become Net Zero Energy Buildings. Virtually all projects of this type are based on the sustainability standards included in the international certification methodologies, such as BREEAM and LEED. Therefore, green certification expand their role and become key strategic pillars for NZEB targets and carbon neutrality.

EVOLUTION OF GREEN BUILDINGS IN ROMANIA

2009

First building registered for green certification Euro Tower, Bucharest BREEAM

2011

First BREEAM certificate in Romania. Crystal Tower Office Building, Bucharest

2018 First public assembly to receive green certification Therme entertainment project, Bucharest LEED Platinum

2019 First residential project to obtain sustainable building certification Luxuria Domenii Residence, Bucharest BREEAM

2009

First LEED certified development Nokia Jucu factory, Cluj LEED Gold. First certified industrial project.

2013

First retail development to obtain green certification: CORA, Bacau BREEAM

2019 First EDGE certified project Renault R&D Center Bucharest

2020 First WELL Health & Safety rating Equilibrium 1 and Campus 6.2, Bucharest

10 Year Review and Forecast

THE CLIMATE CHANGE CONTEXT

COVID-19 reinforced certification standards. BREEAM and LEED strengthened or added new criteria. Newer certification standards, focused on Health & Well-Being, became popular.

NEW BUILDING STANDARDS BREEAM – In May 2020, BRE launched BREEAM In-Use Version 6 – a new and improved environmental standard for existing buildings. Version 6 comes with a host of new and improved features that build upon BREEAM’s industry-leading standards for driving environmental performance and occupant health and wellbeing with added emphasis on resilience to climate change, social value and circular economy principles. LEED – USGBS released new LEED criteria and guidance to address the virus and support buildings with reopening strategies. The updated LEED guidance outlines sustainable best practices for Cleaning, Workplace ReOccupancy, HVAC and Plumbing. These 4 new Safety First Pilot Credits can be used by LEED projects that are certified or are undergoing certification. WELL Building Standard – In September 2020, IWBI launched WELL v2, a more resilient and responsive version, centered on Air, Water, Nourishment, Light, Movement, Thermal Comfort, Sound, Materials, Mind and Community. First project with WELL v2 precertification: MIRO office building, Bucharest.

The 2021 Sustainable Development Report

The IMMUNE Building Standard, developed in Romania and launched by Genesis Property in October 2020, identifies the built environment’s level of immunity to present and future health challenges (COVID-19 pandemic and other bacteriological or toxicological threats). SHORE standard for Risk, Resilience and Security, by SAFE Asset Group, designed to cover all aspects of operational risk when managing places where people shop, work, meet, eat, or stay. First project certified in Romania – Mega Mall, Bucharest, developed by NEPI Rockcastle. Safe Guard certification, by Bureau Veritas, analyzing the safety of the sanitary measures implemented in terms of health, safety and hygiene.

TECHNICAL ASPECTS

NEW LEGISLATIVE REQUIREMENTS

Starting in 2021, the amount of energy needed to be consumed in a new building will become much smaller than a previously designed building. A significant percentage of energy consumption must come from renewable sources, including renewable energy produced on site or nearby, within a radius of 30 km from the GPS coordinates of the building. Renewable energy can come from photovoltaic panels, wind farms, heat pumps or heat from the central heating system.

Initiatives to address the problem of climate change and, in particular, energy consumption are not new. They have been developed in 1970s with the oil shock and energy crises that hit the capitalist economies hard. Two decades after, the problem of climate change became the focus of global agreements. In the past decade, the threat of its acceleration led to international protocols and milestones like Kyoto protocol, Paris Agreement or the recent Green Deal.

Beyond energy sources, however, developers need to pay attention to digitalization, technology and the implementation of efficient measures for ventilation, lighting, heating, domestic hot water, cooling and waste management - all of which lead to reduced CO2 emissions.

Since late 2020, the major act that stands in the spotlight is EU’s climate target for 2030, the 55% reduction in GHG emissions. The detailed legislative proposals to implement and achieve are in process by June 2021.

A special attention needs to go to Embodied Carbon, which sustainability auditors have earmarked towards carbon neutrality goals. Embodied Carbon covers the carbon emissions generated by off-site actions related to the development: producing a building’s materials, their transport and installation on site, maintenance and replacement during the building life cycle, as well as their disposal at the end of life. Given the new performance requirements from the legislative area, architects and building design professionals will be required to take into account these changes and implement energy performance measures from the initial stage of design and authorization. The BREEAM and LEED international standards will represent a key differentiator for property owners and developers in this process, as many of the requirements imposed by the new legislation are already included in the certification criteria, therefore already implemented. Thus, the implementation costs will not see relevant increases for developers with experience in such projects, where the requirements are present from the first phase, or projects where the level quality and end customer requirements are very high. NZEB rules, as well as the EU long-term targets, sometimes require significant changes in design and execution which can generate additional costs.

In Romania, two legislative initiatives related to NZEB are already in force, the most recent being Law no. 101/2020 voted at the end of 2020, which implies that all new private buildings - from individual dwellings, multifamily blocks, office buildings or other types of commercial properties – must have net zero energy consumption, ensured mostly from renewable energy sources, but also through a high degree of energy efficiency. For public buildings, this obligation had already been established since 2018. Energy performance stipulations for new buildings and renovations include overall energy performance requirements, correct installation, sizing, adjustment and control of technical systems. These should cover at least the following: a) space heating systems; b) space cooling systems; c) domestic hot water preparation systems; d) ventilation systems; e) integrated lighting systems; f) automation and control systems; g) in situ electricity generation systems; h) a combination of these systems. The requirements apply to new technical building systems as well as to the replacement and improvement of existing systems, insofar as the technical design states that this is technically, functionally and economically feasible. For existing buildings, their owners / administrators are obliged to install, insofar as this is technically and economically feasible, self-regulating temperature devices when replacing heat / cold generators.

10 Year Review and Forecast

4. EVOLUTION OF SUSTAINABLE BUILDING IN ROMANIA: 2010-2020 MARKET REVIEW Romania has over 300 sustainably-certified properties and ranks 3rd among CEE countries, after Poland and Czech Republic. The accelerated growth is deemed to continue.

The 2021 Sustainable Development Report

EVOLUTION OF SUSTAINABLE BUILDING IN ROMANIA: 2010-2020 MARKET REVIEW

MARKET REVIEW The adoption of sustainable methods over the past decade had a defining role in the evolution of the local real estate landscape – as seen on the map of property development in Romania, as well as in the investment and development strategies and practices. The LEED and BREEAM international green building rating systems found clever ways to enroll the mainstream market in this trend.

NUMBER OF CERTIFICATES PER YEAR 180 154

160 140 120 100 80

60 40 20 0

2010

2011

2012

2013

BREEAM

2014 LEED

The first signs of mainstream adoption was seen in 2014, when local municipality of Cluj Napoca and, later on Timisoara, decided to support local real estate owners and developers to choose a sustainable approach in building design and construction. This led to a visible spike in the number of properties that applied for green certifications (mainly office, retail and industrial), followed by the ascension of certifications obtained as of 2016. Starting with 2018, the sustainable development practices took over the real estate market and the number of certified practices recorded a remarcable ascension and continue to rise across the country. Green building certifications expanded beyond commercial property developments, moving slowly to public areas (a large entertainment and outdoor adventure space in Bucharest being certified in 2018).

2016

2017

2018

2015

2019

2020

TOTAL NUMBER OF CERTIFICATES

Residential projects are now undergoing a spectacular ascent in terms of sustainable development (first project registered in 2019 – Luxuria Domenii Residence, Bucharest). The most impressive tendency – as of 2020 – was given by state property buildings, which are already undergoing or are planned to be renovated in order to become NZEB. At the basis, stands some major legislative initiatives – national and European – that officially rank building and energy efficiency as key priorities in achieving carbon neutrality. Overall, this takes the number of sustainable-certified projects in Romania to over 300 (over 350 if we take into consideration renewals and multiple-certified properties, common for BREEAM In-Use metodology).

10 Year Review and Forecast

NUMBER OF CERTIFICATES PER COUNTY

EVOLUTION OF SUSTAINABLE BUILDING IN ROMANIA: 2010-2020 MARKET REVIEW

160 140

120 100

116

Bucharest & Ilfov

Cluj

0 6

Timis

Iasi

BREEAM

Brasov

Other ci�es

LEED

It is interesting to see the impressive boost in green certifications that took place in the past two years. 2019 saw an impressive evolution compared to the previous years (62 certificates, triple the number achieved in 2018).

At the end of 2020, more than 50% of green-rated properties were found on the commercial real estate market nearby Bucharest. Cluj Napoca (18,6% of the total number of certificates) and Timișoara (10,6%) remain in the top 3 largest real estate markets.

2020, especially, surpassed all levels – facing a whopping ascent: the number of certificates more than doubled compared to the previous year (154 certificates across the country), representing almost the total number of certificates signed in the previews 10 years altogether.

Combining all certified areas in Romania accounts for a total gross area of 7,840,000 m2. With regards to the type of developments, the office segment still has the leading role, followed closely by retail developments.

NUMBER OF CERTIFICATES PER MARKET SEGMENT 120 100

115

80 60 40

20 0

Oﬃce

Retail

Industrial BREEAM

The 2021 Sustainable Development Report

8 1

Residen�al LEED

Mixed-Use and other type of projects

CERTIFIED GROSS AREA PER MARKET SEGMENT

EVOLUTION OF SUSTAINABLE BUILDING IN ROMANIA: 2010-2020 MARKET REVIEW

Residen�al

Mixed-Use and other type of projects

17% Industrial

Oﬃce

43%

Retail

34%

Qualified office space in Romania accounts for a total of 3,380,000 m2, representing 43% of the total certified gross area. Qualified retail properties in the country represent circa 34%, covering 2,650,000 m2. The industrial and residential segments account together for less than 6%, but are showcasing a rapid advance and this difference will be diminished in the upcoming years.

There is a current industrial and logistic development boom. A significant number of properties of this type, with a total area of approximately 600,000 m2, is expected just for 2021, all of which are targeting either LEED or BREEAM green building certifications. A major number of green-certifications are expected on the residential market as well, since this was the star of the past year, with frequent announcements about new developments and strong ambitions.

10 Year Review and Forecast

EVOLUTION OF SUSTAINABLE BUILDING IN ROMANIA: 2010-2020 MARKET REVIEW

RATING SYSTEMS & PERFORMANCE LEVELS Increased market competition between 2010-2020 led to higher quality and performance objectives on behalf of property developers and investors in terms of sustainable measures. This tendency has already been visible in the past two years, when the number of LEED Platinum and BREEAM Outstanding certificates more than doubled compared to the previous years.

Higher standards and ambitious carbon neutrality targets coming from the European Union now enhance the need for daring sustainability strategies from real estate investors and developers, but also from building occupiers. Therefore, these performance levels are expected to be reached more often in the following decade, along with stronger and stricter certification criteria imposed by international methodologies.

CERTIFIED GROSS AREA PER METHODOLOGY

22% 78% BREEAM

LEED

NUMBER OF CERTIFICATES PER RATING

BREEAM

Number of Cer�ﬁcates:

Pass

Good

Very Good

Excellent

Outstanding

LEED

Total:

Cer�ﬁed

The 2021 Sustainable Development Report

250

SILVER

GOLD

PLATINUM

EVOLUTION OF SUSTAINABLE BUILDING IN ROMANIA: 2010-2020 MARKET REVIEW

OUTLOOK Health, sustainable equity and green building access are key factors for building reentry in the new era of sustainable property development. 2021 represents a moment of transition for the green building industry. We consider that the green certification segment will maintain a positive growth rate, despite the current challenges that the office and retail developments are facing. The positive expectations derive from the industrial and residential markets, which had a significant increase in the past couple of years and continue to develop across the entire country. Another rise in sustainable certifications will come from renewals and renovations, which will continue in the next decade, as a result of the sharp standards and targets set under the Green Deal auspices, in addition to owners seeking to keep their buildings competitive. More than 95% of public buildings in Romania, developed before 2010, require significant renovation and improvements, which will need to be implemented in the next decades. There is also an increasing tendency on behalf of property owners to renew their sustainability certificates.

With regards to the certification of office and retail developments, we remain optimistic. The buildings due in 2021-2022 will continue the development or, in the worst case, will be postponed until the market regains balance. Either way, sustainable practices, green certifications and NZEB targets remain and - on the longer run - this will bring new differentiators and opportunities for the projects that are currently under development or in the planning stage. Health and wellness will continue to be a focus: A plurality of real estate stakeholders say health and wellness is one of the top issues companies focused on in 2020, and will continue to be among the top issues for the next couple of years. A vision about health and well-being, together with carbon neutrality will stand at the center of property development in the next decade.

10 Year Review and Forecast

THE BUILDGREEN STORY: 10 YEARS OF SUSTAINABLE DEVELOPMENT PRACTICES

The 2021 Sustainable Development Report

Pioneering always comes with both opportunities and challenges and in the case of sustainable building, it also required a high level of commitment to new development principles and responsible actions. It also brought numerous gain factors in a maturing real estate market. After more than 10 years of activity in the field of sustainable building, we look back at a history full of great achievements and met expectations. 2009, the year when the „Build Green” idea was conceived, there was no shred of expectations in being leading consultants in the design, development and certification of sustainable buildings. There was only a vision for building better. Now, BuildGreen became the chosen consultant in 17 countries across Central and Eastern Europe, for developers and investors to audit and set up their long-term sustainability strategy – in order to reach carbon neutrality.

Our evolution went hand in hand with the growth of sustainable property development in CEE. In Romania, BuildGreen is the pioneer that bookmarked the launch of green building practices. We foresee an incredible improvement in sustainability strategies across all Europe, with property owners setting the ground work for NZEB performance and building occupiers seeking solutions for reducing their carbon footprint. Our belief is that green certifications will stand at the basis of turning Europe into the first climate neutral continent in the world by 2050. The first decade was a journey full of enthusiasm. Now that routes were established, the sky ahead looks much clearer.

10 Year Review and Forecast

BuildGreen Milestones

Razvan Nica appointed by BRE as the ﬁrst BREEAM International Quality Auditor outside the UK, a position from which he supervises the BREEAM certiﬁcation process for projects around the Globe.

First WELL cer�ﬁed development in Romania: MIRO oﬃce building, Bucharest

First EDGE cer�ﬁca�on: Renault R&D Center First residen�al project cer�ﬁed in Romania: Luxuria Domenii Residence, Bucharest NEPI Rockcastle appoints BuildGreen to cer�fy its en�re CEE por�olio

First LEED Pla�num in Romania - Bucharest One (Globalworth Tower)

First green building certiﬁcation in Romania: Euro Tower, Bucharest

Razvan Nica establishes BuildGreen as a licensed assessor organiza�on

Razvan Nica becomes the ﬁrst licensed BREEAM assessor in Romania

The 2021 Sustainable Development Report

2021 2020

2019

CARBON NEUTRALITY THE NEW GAME CHANGER

First BREEAM Outstanding cer�ﬁca�ons in Prague: The Flow Building (retail & oﬃces)

BuildGreen merges with green-gain and starts oﬃcial partnership across Central and Eastern Europe Expo Business Park (BREEAM Outstanding)

2017 2016

Oregon Park, Bucharest (BREEAM Excellent) Followed by:

2013

First collabora�on between BuildGreen and green-gain: Floreasca Park, Bucharest, Romania (BREEAM Excellent)

2012

First BREEAM cer�ﬁca�on in Slovakia: City Business Center III, IV, V (BREEAM Very Good)

2010

Andrew Caistor establishes green-gain as a licensed assessor organiza�on

2009

Andrew Caistor becomes the ﬁrst licensed BREEAM assessor in Central & Eastern Europe

First BREEAM certiﬁcation in Czech Republic: Karlovarska Business Park (BREEAM Very Good)

BuildGreen in a nutshell

+250

certifications

European countries

+5mn

€8bn

sq.m. certified projects

projects total investment value

The Acknowledgements As we look forward to the next decade of sustainable building, we would like to thank our clients and partners that endorsed into the quest for a more sustainable and climate neutral future. We are committed to delivering the best possible outcome in the most efficient manner. We continually strive to advance our personal knowledge and set new standards of professional excellence, providing cutting edge advice and business focused services that allow our clients to reap significant environmental and commercial rewards. As market leaders, we take pride into all our achievements and we take on the responsibility for shaping a more sustainable future. 10 Year Review and Forecast

Bucharest Office (head office) Cotroceni Business Center 7 Iuliu Maniu Boulevard Bucharest 061072, Romania office@build-green.eu +40 314 38 26 68

Prague Office Vita Nejedleho 1547/3 Prague 13000, Czech Republic office@build-green.eu +42 073 111 92 93