Energy and resource efficiency in real estate management: new lead market in Germany is worth around EUR 40 billion, and shows great growth potential

• Roland Berger's new study shows German energy and resource efficiency market is expected to grow 6.5% p.a. by 2020
• This new lead market covers products and services involved in helping existing buildings use energy better and making new ones highly efficient
• Twofold benefits: saving up to EUR 17 billion on costs and reducing CO2 emissions by 46 million tons p.a. by 2020
• Germans are increasingly keen to invest in renovating to use energy efficiently
• Real estate service providers should develop their own new business models and solutions to make the most of rising demand

Germany is seeing a new forward-looking lead market emerge for using energy and resources efficiently in real estate. This includes products and services to increase efficiency by renovating existing buildings and making new ones extremely efficient. The market was already worth around EUR 40 billion in 2010, and the trend is upwards: it is expected to grow 6.5% p.a. by 2020. The benefits of saving energy on heating are twofold: first, it could save up to EUR 17 billion a year on costs by 2020; second, it could cut CO2 emissions by 46 million tons p.a. over the same period. The main reason this new lead market is set to grow is because German real estate owners are increasingly prepared to invest. But suppliers of energy-efficient products and services can benefit from this huge potential market only if they are in a position to expand their range and offer a range of solutions from one source. Those are the findings of a new study entitled "Energy and resource efficiency in real estate management" by Roland Berger Strategy Consultants.

"The new lead market for energy and resource efficiency in Germany is highly dynamic," explains Torsten Henzelmann, Partner at Roland Berger. "It offers outstanding opportunities, both for real estate holders, who can save on heating costs, and for product and services providers, who can benefit from the increasing demand."

Good growth prospects for energy efficiency market

This new German lead market was already worth just on EUR 40 billion in 2010, and is set to grow by 6.5% p.a. in the coming years. By 2020, the market for energy-efficient real estate solutions should be worth over EUR 76 billion, including more than EUR 32 billion in building systems. Anyone offering solutions for heating systems, CHP and intelligent building automation will especially benefit from this upturn.

The market for roof and building façade insulation services is also expected to be worth around EUR 32 billion by 2020. "There are a number of reasons why this market is growing so strongly," says Ralph Büchele of Roland Berger. "First, rising raw material and energy prices are spurring demand for efficient real estate to save heating costs. And, in the private sector, government subsidy schemes for renovating energy and high-efficiency new buildings are good for demand."

Optimizing efficiency: the benefits are twofold

What really makes the difference is that the benefits of energy-efficient real estate management are twofold: it not only saves costs, it reduces CO2 emissions too. Germany's federal government aims to lower real estate heat usage 20% by 2020, which requires a renovation rate of 3% p.a. If this can be achieved, it could save around 184 TWh of thermal energy a year by 2020, or about as much as 10 million households or so use for heating. That would save around EUR 17 billion a year.

Energy-efficient real estate management also has another benefit: it could considerably reduce Germany's CO2 emissions. By using heating energy more efficiently, Germany could save around 46 million tons of CO2 emissions a year by 2020 – the equivalent of three coal-fired power stations.

Real estate owners increasingly ready to invest

German real estate owners know how important it is to take steps to make it energy-efficient, says Henzelmann: "Real estate owners have realized energy efficiency doesn't just save them heating costs and reduce CO2 emissions. It also makes their property worth more, because energy-efficient, renovated buildings are increasingly sought after in the German market."

Even now, 34% of German portfolio holders are prepared to invest more money in making their property energy-efficient; and this figure is expected to increase to 45% in five years' time. "This trend shows we are facing a booming demand that suppliers with the right products and services need to meet," says Ralph Büchele.

Holistic solutions: new challenges to suppliers

Up to now, property holders have limited themselves to increasing efficiency in isolated cases, investing mostly in individual solutions like windows, lighting or energy management to make their heating systems more efficient. "This is mainly because no one is offering solutions under one roof. Using a number of different contractors makes it difficult to realize a building's full efficiency," Henzelmann explains.

Integrated efficiency optimization – from building shell to building systems to operation – is still extremely rare. "This is precisely why this offers a potential market for German suppliers they have not used to date – provided they can expand their range and offer holistic solutions," says Büchele.

To develop innovative successful business models, however, business needs enough specialists. Around one-third of those surveyed said this was a major hurdle. Trained specialists in construction and real estate are in increasing demand. To attract the best staff and keep them, therefore, businesses need targeted human resources policies such as mentoring programs and incentive systems, stronger employer branding communication and recruiting via new channels such as social media platforms.