Market Research
Brownfield Development and the Implications of Net-Land-Take Targets
Authors: Maria Wiklund, Insights & Intelligence and Peter Walker, Sustainability
November 12, 2024 5 Minute Read Time
Key Findings/Summary:
- Commercial real estate and housing are large contributors of land take across Europe, negatively impacting biodiversity.
- Several regulations and policy targets have been introduced aiming to combat these issues, few are binding.
- The implications for real estate are significant, and shifting from greenfield to brownfield development, and higher-density development, has become an essential strategy for developers.
- For real estate investors and developers, planning risk will arise primarily where there is exposure to development refurbishment activities which have a negative impact on biodiversity.
- New developments will increasingly occur on brownfield land across all sectors as land regulations come into effect.
- Increase in land take has primarily been driven by the logistics and residential sectors.
- The revitalization of brownfield sites creates a huge opportunity for the logistics sector, as logistics space is in higher demand than ever before.
- Brownfield land can also be further harnessed to combat the chronic undersupply of housing across Europe and the U.K.
- Brownfield sites represent a significant financial opportunity for real estate developers. By navigating the complexities of these types of redevelopments, developers can unlock considerable value, transforming these sites into vibrant residential, commercial or mixed-use developments.
Greenfield land is increasingly protected
Land conversion to artificial surfaces impairs the ecological functions of land and makes ecosystems less resilient, primarily due to habitat loss, degradation and fragmentation. In Europe, this conversion takes place primarily in cities and commuting zones. Between 2012 and 2018, the net land take in the EU in these zones was 450 km2 annually, mostly from croplands, pastures and forests. Population and economic growth, transport infrastructure and manufacturing are major drivers of land take. Commercial real estate and housing are large contributors as well.
Several regulations and policy targets have been introduced over recent years across Europe, with the aim of reducing land take and restoring biodiversity across the region. The implications of the policy targets for real estate are significant and shifting from greenfield to brownfield development to meet future zero-land-take limits is becoming an increasingly necessary strategy for real estate developers. However, considerations vary across geographies and sectors.
Because of their history, brownfield sites are often located in well-developed commercial or industrial areas, or inside city centers, which already have existing infrastructure that can reduce developer costs and timescales. These sites can benefit financially from lower acquisition costs compared to greenfield sites and are often less carbon intensive. When buildings such as old factories and offices are re-used, there is a savings in embodied carbon through the reduction in materials consumed and construction activity required. Brownfield development caters to the growing demand for urban space and also aligns with sustainable development goals by minimizing greenfield sprawl. Risks include the elimination of soil contamination requiring rehabilitation, but these processes benefit local populations and municipalities.
One of the critical advantages of brownfield redevelopment is the potential for financial support from national governments and local authorities. Various schemes and incentives are designed to encourage the regeneration of these sites, mitigating some of the financial risks associated with environmental cleanup and infrastructure improvements.
Many targets and objectives in place, few that are binding
In 2011, the European Commission announced a recommended target of no net land take by 2050 to preserve soil, protect biodiversity and enhance everyone’s quality of life. The recommendation outlines that, by 2050, new development in the EU will either need to occur on brownfield land or any new greenfield land take will need to be compensated by habitat restoration and/or creation. The target was confirmed in 2021 as part of the European Union Soil Strategy, but it remains non-binding. While data shows an overall reduction of land take since the 2011 announcement, the decrease could be a result of many factors, including slower economic growth (Figure 1).
Figure 1: Net annual land take in Europe in km2 – EU27 + U.K.
Although there remains no obligation to implement the no-net-land take by 2050 measure, some EU member states and regions have decided to follow the recommendation to limit urban sprawl. France is the only EU state that has thus far adopted a binding no-net-land take target, requiring in a 2021 law that all French territories must halve their new urbanization during the 2020-2030 period compared to the previous decade.
In Belgium, the approach is regional. In 2023, the Flemish parliament voted in favor of a gross zero land take by 2040. It is the most radical measure currently implemented across Europe. The Flemish government will compensate up to 80% of the value of a plot for all owners who do not build on their land.
Although neither Germany nor Italy has a binding target, some of their regions have decided to take action. In Bade-Wurttemberg (Germany), the Lander government is committed to a very ambitious target of net zero land take by 2035, but this announcement has not led to the approval of a law yet. In Emilia-Romagna (Italy), a regional law adopted in 2017 sets up the European objective of no net land take by 2050, allowing new urbanization of only 3% of the territory of each commune before 2050 and only for public-interest projects.
Further, in 2024 the EU announced a nature restoration law, which aims to restore degraded ecosystems, help achieve the EU’s climate and biodiversity objectives and enhance food security. To reach the overall EU targets, member states must restore at least 30% of habitats covered by the new law (from forests, grasslands and wetlands to rivers, lakes and coral beds) from poor to good condition by 2030, increasing to 60% by 2040 and 90% by 2050. In addition, EU countries should give priority to Natura 2000 sites* until 2030. Once an area is considered in good condition, the respective EU country must ensure the area does not significantly deteriorate. Member states will also have to adopt national restoration plans detailing how they intend to achieve these targets.
Despite having left the EU as of 2021, the U.K. continues to lead on biodiversity regulation. Driven by external commitments to biodiversity and climate change, the U.K. government launched the Biodiversity Net Gain (BNG) regulation through the Town and Country Planning Act 1990 and Environment Act 2021, aiming to protect and enhance existing biodiversity. The regulation took effect in February 2024 for major developments and in April 2024 for minor developments and will be enforced by English Local Planning Authorities (LPAs). Many LPAs have already implemented protections at a local level, prior to regulatory introduction.1
Further, the U.K.’s The National Planning Policy Framework (NPPF) sets out government’s planning policies for England and how these are expected to be applied. The NPPF emphasizes the importance of prioritizing brownfield development and Chapter 11 of the NPPF states that planning policies should "give substantial weight to the value of using suitable brownfield land within settlements for homes and other identified needs." Local planning authorities are encouraged to take a proactive approach in identifying and helping to bring forward brownfield sites that are suitable for development. However, this does not mean that brownfield sites automatically receive planning permission. Developers are still required to submit detailed planning applications and meet the necessary criteria set out by local authorities.2
We can conclude from the wide range of targets and their different implementations that real estate developers need to have a thorough understanding of the regulatory environment at a national and even sub-national level. This is also important for the owners of existing assets (or zoned land) as the varying constraint on new supply will be one driver of future investment performance.
Figure 2: Net-zero-land take target, plan and regulation summary
Greyfield land/‘Grey Belt’ in the U.K.
A planning system overhaul has been unveiled by Deputy Prime Minister as part of the U.K.’s new government’s pledge to deliver 1.5 million homes over the next five years. New rules will require half the dwellings built in the grey belt to be affordable homes. Under the plans, some low-quality green belt land will be freed up to become part of a 'grey belt' to allow new homes to be built.3
Under the Labour government's plans, if a council's housing targets cannot be met, some existing green belt land will be re-designated as grey belt. The government also says that brownfield sites should still be prioritized over the grey belt. Established more than 70 years ago, the green belt covers approximately 13% of England. It was designed to limit the growth of large built-up areas and to stop large towns merging into one another. Under the current rules, it is very hard to build on the green belt. Applicants need to demonstrate very special circumstances to justify planning permission.
Real estate development is a major driver of land take
Commercial real estate and housing are major drivers of land take in Europe. Commercial uses have accounted for 25% of land take between 2000 and 2018. While single-family homes in suburban areas have represented 22% of land take between 2000 and 2018, multi-family residential developments located in dense urban areas only represented 0.3% of total sealed land (Figure 3), as these developments are typically brownfield in contrast to greenfield. Brownfield land can therefore be further harnessed to combat the chronic undersupply of housing across Europe and the U.K.4 Smaller neglected sites can provide opportunities for small and medium-sized housebuilders to improve the local landscape of a street or community. Unfortunately, it is important to highlight that there can potentially be an imbalance between the areas of extensive brownfield land and areas of high housing demand. Large brownfield sites are often found in parts of the country that have experienced weaker economic growth, where house prices are lower and there is less demand for housing. Uncontaminated sites in higher-value areas tend to be purchased by developers, leaving behind the areas which are not considered economically viable.
Figure 3: Land take drivers (% of land take) – 2000-2018 – EU27 + UK
Despite the overall reduction of land take highlighted earlier, analyzing the commercial real estate development pipeline from Real Capital Analytics shows a continued increase in developments over recent years, and especially since 2012. The increase was primarily driven by the logistics and residential sectors, followed by retail and office (Figure 4), demonstrating that the industry is vulnerable to tighter regulation around net land take and must be thinking of ways to adapt.
Figure 4: European development land take-up (hectare) by sector, 2008-2023
It is a fair assumption that land used for logistics development has a higher ratio of greenfield, and hence land take, compared to the other sectors, as these are usually developed further out from cities and closer to main motorways for transportation purposes. The revitalization of brownfield sites creates a huge opportunity for the logistics sector, as logistics space is in higher demand than ever before, and highly modern logistics facilities can be developed in attractive infill locations.
Lastly, sectors differ in their density (building to land area ratio) based on usage of space. Logistics and retail are historically classified as low-density sectors, while office and residential are higher density. Logistics assets are commonly single-story properties that sprawl more on the land plot and hence have a lower density. Residential is often built as larger multi-story apartment buildings, hence the square meters are stacked on the land plot, resulting in higher density.
Density further increased for office and residential sectors between 2013 and 2023, while remaining relatively static for logistics and retail, which are still the least dense sectors (Figure 5). The contrast is perhaps due to less greenfield land being available, especially in prime locations and for new developments, as more regulations against land take are put in place. Residential is currently the densest sector (1.1 sqm/hectare), while logistics the least dense (0.4 sqm/hectare). Densification is generally encouraged by regulation to minimize land take.
Figure 5: Average building to land area ratio, density, (sqm/land hectare) in Europe by sector, 2013 vs. 2023
Brownfield and higher-density development essential to meet net-land-take targets
Going forward, new real estate development is likely to focus on residential and logistics space given the strong demand trends and the current lack of supply. As we have shown, these are also the development types typically most dependent on net land take. These factors are likely to push developers to increase densities in the future, possibly by building multi-story logistics facilities. Current market conditions suggest less development activity in the retail and office sectors, but the urban nature of these buildings makes land take regulation less relevant.
We expect new developments to increasingly occur on brownfield land across all sectors as land regulations come into effect. Focus should now be on identifying brownfield plots for redevelopment because future land-take regulations are likely to become even more stringent and the pool of brownfield opportunities is finite.
For real estate investors and developers, planning risk will arise primarily where there is exposure to development refurbishment activities which have a negative impact on biodiversity. Within the current English implementation, net biodiversity gain can be harder to obtain on brownfield land than poor quality greenfield land (e.g. low quality arable fields), as brownfield habitats can score more highly in terms of greater biodiversity value. The context of biodiversity is highly nuanced, and dynamic, and as such it is always advisable to get an ecological consultant involved as early in the process of developing a greenfield site as possible to mitigate potential risks from nature regulation. Increases in land costs will also become a risk factor, and value will increase for land types typically used for offsets, where applicable under the various regulations. Though longer term, developers and investors are likely to build this into their pricing models.
Brownfield sites represent a significant financial opportunity for real estate developers. These previously developed sites offer the chance to reinvigorate and repurpose valuable land that might otherwise remain underutilized. By navigating the complexities of these types of redevelopments, developers can unlock considerable value, transforming these sites into vibrant residential, commercial or mixed-use developments.
Part 1: A comprehensive list of all brownfield sites that are considered suitable for residential development.
Part 2: Sites that have been granted Permission in Principle (PiP) for residential development.