From Risks to Opportunities: Holistic Retrofit Strategies to Stabilize and Enhance Asset Value

Written By Margaret Kam and Lizette McNeill

Hong Kong buildings account for 90% of total electricity consumption and around 60% of greenhouse gas emissions. Therefore, buildings present both challenges and opportunities for reducing energy use and carbon emissions. As most buildings that will be in use in 2050 already exist today, the retrofitting of existing buildings is widely recognized as a key strategy to mitigate the effects of climate change, meet built environment decarbonization targets and avoid stranded assets. With a growing portfolio of stranded assets where buildings are neglected and becoming undervalued, Hong Kong needs to look beyond just green-certified or high performing built assets and scale retrofit action across the wider building stock to achieve the city’s climate and economic goals.

With a growing portfolio of stranded assets where buildings are neglected and becoming undervalued, Hong Kong needs to look beyond just green-certified or high performing built assets and scale retrofit action across the wider building stock to achieve the city’s climate and economic goals.

Building services has been a strategic target for retrofits to enhance energy efficiency in Hong Kong. Much less attention has been paid to the role of building facades and its interdependencies with building services retrofit measures to maximize opportunities that may be limited by implementing ad hoc retrofit interventions. Although evidence demonstrates the benefits of retrofitting facades to reduce energy demand and mitigate carbon emissions whilst enhancing daylighting, thermal comfort, indoor environmental quality and climate resilience of a built asset, it often becomes a secondary consideration in retrofit strategies due to perceptions of higher upfront costs, longer term returns, disruption to business operations and split incentives between owners and tenants. However, building facade improvements are generally necessary to achieve higher levels of energy performance with compounded savings, and to ensure that buildings can perform safely and efficiently under more variable climate conditions and higher frequency of extreme weather events.

Against this context, IXO argues for greater focus and further work in the following areas:

Adopting an integrated approach to building retrofits - Studies show that building facades and services are often considered in isolation from each other, even though there are numerous interdependencies between these retrofit measures that could positively or negatively impact the combined performance outcome at the building asset level. An integrated retrofit framework with considerations of both facade and service measures—across the light to deep retrofit spectrum can provide a more holistic and systemic approach to building retrofits that can deliver compounded savings and value-added benefits.

Taking a strategic portfolio view – Retrofitting at the portfolio level, taking an integrated approach together with climate risk assessments, creates opportunities that individual buildings cannot achieve on their own. Buildings of a similar age and condition, and situated in a particular climate, may share similar technologies, materials and structural composition - making it possible to identify assets for parallel upgrades and staged improvements to achieve economies of scale. Considered with lease and maintenance cycles, and changes in use to extend the useful life of assets, repositioning a building portfolio through retrofit can reduce costs, enhance safety and comfort, preserve asset value, increase asset resilience to climate impacts and minimize the risk of stranded assets for investors and asset owners.

Examining the embodied carbon of retrofits – The retrofit of energy inefficient buildings has primarily focused on reducing energy consumption and operational carbon emissions. With the increasing contribution of embodied carbon to global emissions as operational efficiencies improve, there is a need to prioritize the reuse or adaptation of existing buildings to reduce the absolute carbon emissions and contribute to a circular economy approach. Facade and structural considerations are integral to reducing the overall embodied carbon of retrofits. An integrated retrofit approach can weigh the additional embodied carbon emissions from retrofit measures against savings in operational carbon emissions over a building lifespan to arrive at the lowest overall emission scenario.

Building a robust evidence base for an integrated retrofit transition – Although studies have been conducted to develop various multi-criteria decision-making models which offer high level examinations and insights on the environmental and financial impacts of integrating building facade and building service retrofit measures in different climates; more pilot projects and practical case studies are needed in a hot humid subtropical climate such as Hong Kong—to further demonstrate the performance of bundling facade and service retrofit measures with actual technical and economic data (including paybacks, asset value and rental premiums). A strategic approach to adopted measures and performance assessment can be linked to financing frameworks and insurance underwriting to advance integrated retrofits.

There is consensus that major challenges to retrofitting the existing building stock in Hong Kong lies not in technology but in finance, governance and market design. However, further work is still needed to identify and apply effective integrated retrofit strategies, combining structural, facade and building service design and technology applications, to sustain and enhance an asset’s performance and resilience to climate impacts over time. Further investigation of the above four areas can inform more holistic retrofit strategies and parallel developments in regulation, finance, technology and ongoing asset management.