Published on December 1, 2022 by Hina Singhal and Manisha Baid and Rajeev Hota
In 2022, the real estate owners have increased focus on sustainability and repurposing the existing and upcoming properties. This is primarily due to two reasons – the first being the current post pandemic short-term trend which suggests relatively lower occupancy especially in commercial real estate and property owners looking for innovative revenue streams through alternate use of existing properties. The second being the stronger demand for environment-friendly and sustainable properties.
One area that has been witnessing many innovations is the proverbial ‘rooftop’. Rooftop has evolved over the last few decades from being an unused space (usage limited for mechanical equipment) to a selling point for owners and builders. Builders, developers and property owners are becoming aware of its importance as optimum use of the space can save them huge costs and even provide some extra income.
Accordingly, the industry is currently witnessing a huge shift in terms of rooftop usage across segments – be it restaurants, office buildings, shopping centres, warehouses or apartment complexes. Furthermore, there is so much of rooftop space that remains unexplored, which adds to its potential.
The benefits do not stop at cost savings and additional income; rooftops also offer businesses the scope to manage their ESG goals with opportunities such as green roof set-ups, apiaries and rooftop solar farms.
Activity by Sector
The most popular and accepted use is the installation of solar photovoltaic (PV) systems on the rooftops of commercial and residential buildings. In 2022, the European Union (EU) proposed a binding target of at least 40% domestic reduction in greenhouse gas emissions by 2030, compared with 1990. It also proposed to have rooftop solar on all suitable commercial and public buildings by 2027 and residential buildings by 2029. In addition, the EU targets to increase the share of renewable energy in the total energy mix to 45% from 40% by 2030.
A European Joint Research Centre (JRC) analysis shows that rooftop solar PV in the EU could potentially produce 680 TWh of solar electricity annually (representing 24.4% of electricity consumption). Furthermore, investments in the solar sector generate the most jobs per million euros of capital investment. On top of the enormous benefits that they provide for households, from lower energy bills to clean and affordable energy, PV systems on rooftops do not compete with land use, and their integration into the electricity system is relatively easy due to their proximity to the point of consumption. Rooftop solar PV installations on residential buildings offer enormous potential as they can be installed quickly, enabling households to shift from being mere consumers of energy to “self-generators” and active participants in renewable energy transition.
A report by CAN Europe and its member organisations focusing on rooftop solar PV on residential buildings (for both individual and collective self-consumption) talk about the significant barriers that impede a higher uptake of rooftop solar PV. Furthermore, many member states still lack the right regulatory framework and supportive environment. However, the emerging trend favouring renewable energy sources bodes well for the rooftop segment, which is a ready-to-install area for solar PVs, and should soon enable a faster and easier approval process. Some member states have started exempting the need for households to obtain approvals for installation; for example, Ireland has proposed to allow all houses, regardless of location, to install solar panels on rooftops without any government approval.
We see similar trends emerging in office building rooftops. Property owners are trying to woo the big tenants by creating new office rooftop designs. ‘What you have to offer on your rooftop’ is now a differentiating factor to attract good tenants. Gen Y employees, who form the largest percentage of workforce, are being lured with the offer of outdoor amenities on rooftops. As there is scarcity of sufficient outdoor space, rooftops within office buildings offering some additional amenities is a smart choice.
Also, the Hospitality sector is most active in terms of rooftop activities in both the EU and the UK. The hospitality and entertainment industries are highly competitive. Everybody wants to gain an edge by offering guests something their competitors do not have and keeping costs under control while doing it. This reality has led to businesses throughout the hospitality and entertainment industries enticing guests with creative uses of capital assets they already have and rooftops now play a major role in that strategy. Here are some of the best ideas we have seen in terms of “roof-attainment:”
Swimming pools: Swimming pools on hotel rooftops are not something new, but they have recently achieved a new level of glamor, elegance and status.
Restaurants and bars: Rooftop restaurants are a big draw, especially in locations that offer breath-taking views. Many businesses are turning their rooftop spaces into funky bars and nightclubs, like the one at the Adriana Hotel in Croatia.
Rooftop gardens: Green rooftops are one of the biggest construction trends right now, but some buildings have gone further ahead, turning their rooftops into garden areas that qualify as attractive destinations. Kensington Roof Gardens in London, for instance, boasts of a stream – complete with fish, bridges, walkways, sitting areas, shrubs and over 100 species of trees. This rooftop garden is even home to three flamingos.
Sporting facilities: In urban areas, it is very difficult to find sufficient space for sports activities. However, rooftops are being converted into sporting venues these days. For example, Tokyo’s Adidas Futsal Park – which sits atop a department store – gives users access to sports facility in a convenient location.
Property owners are also remodelling or repurposing their existing properties to generate alternative revenue. We believe new businesses and start-ups will find this option attractive. Some examples are:
Drones: A recent example is Skyports, which is buying rooftops in London to build a drone delivery set-up. This upcoming trend has great potential if though it may be subject to heightened rules and regulations
Branding: Businesses along airport approach and departure paths have discovered another use for their rooftops - advertising. With thousands of passengers easily available as target audience, it is a great way to promote brand awareness.
Farms: Another expansion of the green roofing trend, rooftop farming is taking New York City and other urban centres by storm. Whether it is a family trying to cut the grocery budget or a restaurant trying to cater to its “locavore” clientele, rooftops are supplying a substantial amount of locally grown produce.
Beehives: Construction trends are getting eco-friendly. For instance, The Omni Dallas just opened its rooftop to 300,000 honeybees. Beekeepers will soon be planting the fruits, flowers and other plants needed to sustain the hives. And, in exchange for the free accommodation and food, the bees will be providing hundreds of pounds of honey for the hotel and its restaurants.
Viability (Costs / Repurposing)
Some of the use-cases such as the installation of solar panels or turning the roof into a green patch require little or no additional permissions subject to some exceptions. In the UK, solar PV installations is a permitted development and a planning permission is not required specifically, barring some exceptions. Permissions for a green roof is also much easier given the environmental benefits. For other use cases, necessary building regulation and planning permissions needs to be met. Also, it is important to have permission from the insurers and mortgage providers.
Construction and repurposing costs/Disruptions
As new uses are coming to the fore making the rooftop industry competitive, the rooftop usage has become a compulsory part of construction planning for all new projects giving builders an extra edge. For new construction, the question is really about choosing the best viable option based on host of external factors – light, location, planning permissions, building structures, etc. For existing structures, it requires some extra analysis as the builder/owner also has to factor the disruptions in day-to-day operations during the remodelling – noise, tenant concerns, etc. A detailed cost-benefit analysis needs to be done considering loss in business profit owing to the disruptions, overall cost of installation, impact in value post refurbish. Also, major emphasis is on the building structure if it can weigh the extra load of the refurbished future usage. If a roof structure was not initially designed for extra load, it requires a significant amount of modification to meet those standards along with regular maintenance. Some buildings may not have any option but to keep roof usage to its original custom –HVAC units as the removal and refurbish cost is very high. Not all roofs are designed for all the uses, plus zoning variance is not assured and is very time-consuming.
Success / Failures
Each commercial property type has its own rooftop needs based on the function of its business and how it operates. The overall cost of installation, maintenance cost, and the longevity are the key factors in determining the best suitable rooftop, along with spatial and climatic possibilities of location.
For commercial buildings all around the world, one of the most common and successful rooftop type is PVC (Thermoplastic Poly Vinyl Chloride). PVC roofs are resistant to puncture, chemicals, UV rays and fire, with a life expectancy of ~30 years. They has worked best for flat as well as low sloped roofs, and are very easy to maintain. Also, the Modified Bitumen rooftops comes with very low maintenance and have an average life of more than 20 years. Similar to PVC, it can withstand extreme weather, and are water-proofed. There are few other options like gable, gambrel, and mansard which works well in limited conditions but have failed in extreme conditions like heavy rain, wind and snow. A detailed cost-benefit analysis of all the available options, along with good understanding of the structure, framing and geogphical areas may help decide on what rooftop will work best.
Regarding the rooftop uses, solar panels and green roof-tops are gaining the maximum traction with builders. Like any other investments they actually get economic benefits along with aiding several socio-environment causes of saving energy, shed heat, storm water management, drainage layers, improved air quality and much more. Solar rooftops manufacturing demand is expected to grow at CAGR of ~20% until 2030, while the demand for green roof is expected to grow at CAGR of ~15%.
However, not all rooftop ideas works well for all buildings as most buildings have to be supplemented for the extra weight it will bring. Also, the business case of rooftop uses whether it the green rooftops, solar panels or rooftop farming hasn’t come across the right way and the benefits are unclear mostly shadowed under the misapprehensions regarding their high cost, and maintenance burden. Even the benefits these may fetch from environmental certifications such as LEED, PassivHaus and Energy Star isn’t very clear and their outreach is limited. For refurbished buildings, poor quality construction becomes another bulging issue. The technologies in this area are still very novel and developers find it somewhat easier to opt for the same old.
Outlook - Acuity View
With almost 65% of the population expected to live in cities by 2050, there is growing concern of the space constraint, and developers are exploring newer ways to best fit the growing needs. In densely populated areas like Europe, hundreds of thousands of potential square kilometers is unrecognized. There are organizations like ‘The European Creative Rooftop Network (ECRN)’ supported by European Commission and ‘Rooftop days’ Association who are finding unique ways to unlock the unused space of rooftops. As per one of the studies by the association, only 3% of the full potential of rooftop space is currently utilized.
As per our view, the future of valuable rooftops lies in identifying the best possible combination of diverse uses it can be put to for maximum benefits to builder, users, and community. Many developers are exploring newer ways and experimenting unique ideas such as drone delivery set-up, branding, green roofing and beehives, and much more. Architects, builders, developers and the local municipalities have to make a conscious effort to lead this change with focus on climate change policy focusing both on new developments, and also how to remodel existing spaces.
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About the Authors
Hina Singhal has over 12 years of experience in commercial lending domain. At Acuity Knowledge Partners, she currently leads CRE client engagement for one of the largest global insurance corporation and is actively involved in new process transitions, client management, training and quality control of deliverables. She holds a MBA (Finance) and a bachelor’s degree on Commerce.
Manisha is part of the Lending Services Projects and Transition team at Acuity Knowledge Partners. She has over 15 years of experience in transitioning and leading teams and projects for commercial and investment banking clients. Prior to Acuity, she worked as an equity capital market analyst at Goldman Sachs and as an investment banking analyst for Bear Stearns. She holds an MBA in Finance from MDI, Gurgaon and a Bachelors in Commerce from Shri Ram College of Commerce, Delhi
Rajeev has been with the firm since July 2013 and overall 18+ years of experience in Commercial Real Estate (CRE) industry. His responsibilities include managing one of the large CRE engagement and relationship, coordinating with client on new initiatives and services, working with teams to identify and improve efficiencies and productivity, training team members on complex and value-added analysis, and implementing industry best practices in the Acuity team for CRE risk analysis and underwriting..
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