Skanska Designing a Future Built on ESG Principles

BBJ: What projects are Skanska working on in the Hungarian market now, and what is in the pipeline regarding new investments?

Aurelia Luca: The development of the first phase of our 10th project in Hungary, H2Offices, is nearing the finish line, with completion scheduled for this year. This will be an office complex in the heart of the Váci Corridor, offering an excellent location and in the direct vicinity of a public transportation hub.

The first building provides almost 27,000 sqm of leasable area and consists of eight floors and three underground parking levels. Traditional Scandinavian design principles and environmental consciousness are at the concept’s core. Employees will be able to relax and work in the 5,000 sqm landscaped garden with ponds, which will also be open to the public, serving as a meeting place for community life. The first phase offers a rooftop running track with an amazing view over the city, accessible to the building’s users. Energy efficiency, smart water management, lots of natural light, and bicycle-friendly facilities all ensure environmental awareness and the well-being of tenants. The development aims for Leed, Well, Well Health-Safety, and Access4You certifications.

Talking about pipeline, we have strong plans and we aim to strengthen even more our presence in Budapest.

BBJ: What are the prospects for the Hungarian real estate market, and how does this compare with Romania?

AL: Although past years brought valuable lessons, we went through a pandemic and now face geopolitical and energy-related turbulences. Yet the CEE market has proved to be resilient so far. Hungary and the CEE region remain investment destinations that offer attractive yields and a variety of premium assets. Investors are looking for core commercial property products to protect value for money over time in the context of rising inflation.

Office development remains one of the sectors dominating both the Hungarian and Romanian markets. Similarities between the two countries also exist when looking at perspectives on offices. Following the pandemic, on the one hand, we observed a tendency for more companies to use their workspaces as one of the tools to attract employees back to the office. On the other hand, rising energy and utility prices may also encourage employees to work from the office.

We are happy to see more companies paying increased attention to minimizing their environmental impact and closely looking at energy efficiency because it means we can join forces for the same big scope. To give just one example, in our last delivered building, Nordic Light Trio, we save approximately 50% on energy yearly, compared to a conventional office building, due to the carefully selected solutions.

BBJ: How have Skanska’s projects changed during the pandemic? How do you see the balance between working from the office, home or hybrid?

AL: The pandemic didn’t have significant effects on our projects. However, our recent research shows that it has reshaped employees’ expectations and attitudes toward office work. The office will continue to be an essential part of working life; new developments need to make it easier to share experiences and find a work-life balance after a period that blurred the boundaries between the two; this trend is visible in all the CEE countries we are present. We expect employees increasingly to return to the office, but at the same time, the need for flexibility is vital and offices have to address such expectations by offering solutions that combine traditional and flexible workspaces.

At the same time, when it comes to the design and features that we integrate into our projects, even before the pandemic, these were well-thought-through to answer the evolving working habits of our users. Luminous and welcoming lobbies with a multitude of functionalities, including spaces for work, a library area for reading, and a cozy fireplace for a warm drink. Outside, we focus on creating generous landscaped gardens for residents to relax and enjoy the fresh air.

BBJ: We are in a market characterized by rapidly rising raw material, labor and energy costs. How does Skanska manage these? How much do you pass on, and how much must you just swallow?

AL: All markets are experiencing high volatility. The immediate impact on the entire real estate industry means challenges in materials delivery and increasing energy prices. We have pre-ordered most of the materials for our projects, controlling such risks and ensuring that we operate according to the established schedules and deliver what we promise.

BBJ: Energy costs, in particular, are focusing ever more attention on sustainability. How is Skanska placed to hit its carbon neutrality goals? Are you considering accelerating these at all?

AL: At Skanska, we have many years of experience taking measurable actions for sustainable development; it is at the core of our operation. We have very strict rules and ambitious goals to become carbon neutral. Our plan to do so has produced results that exceeded initial expectations. Today, at the group level, we have achieved more than 46% emission reductions in current projects, which has motivated us to create an even more ambitious target. We now aim to reduce our carbon emissions by 70% by 2030 and to move towards net zero in our operations and supply chain by 2045.

Our climate target is accredited by the Science-Based Targets initiative (SBTi), which confirms that the company is contributing to achieving the Paris Agreement goal of keeping global warming at 1.5ºC. The progress we are making in reaching our targets has gained international recognition; we have been included in the Financial Times and Statista “Climate Leaders” list ranking 4,000 companies according to their carbon emissions. Another recent recognition is “The ESG Real Estate Leader of The Year” for Central and Eastern Europe at the Eurobuild Awards.

Our office buildings are designed and built taking into account ESG principles. Take H2Offices, for example: during the development phase, we took great care to ensure that 95% of the waste generated during construction is being recycled and reused. Moreover, we used concrete and facade elements with low CO2 emissions. H2Offices is a nearly zero building in terms of energy efficiency (which means that it uses energy within a limitation defined by local legislation) and complies with EU Taxonomy climate change mitigation. We save almost 40% of water in accordance with Leed certification requirements, and rainwater is collected to reduce potable water consumption. The building is also designed to allow the most sunlight into the office areas.

BBJ: Related to that, do you expect ESG-compliance rules to be tightened further? Is the push from regulators or the demand from investors and tenants the more significant factor in ESG?

AL: Continuous interest in ESG standards shows that they will determine the market shape in the near future. At Skanska, ESG aspects are embedded in our projects’ entire lifecycle, starting from purchasing land through selecting building materials and sustainable design, installing climate and user-friendly fit-out, and ensuring efficient operations. Tenants are willing to align to ESG criteria, which is among the top requirements on their list, and ESG-proof developments will become the long-term standard.

This article was first published in the Budapest Business Journal print issue of October 21, 2022.