Adaptable Assets is a business model well aligned within the concept of the circular economy. Adaptable assets are buildings that can accommodate more than one specific use during their lifetime. These buildings are more resilient and are those that are built to withstand both the changing of future market conditions and social expectations by being able to adapt to alternative uses within the built environment. A business model that involves the reuse of an existing structure for a different purpose is essential in order to have a solid stake in the real estate market.
Currently, most buildings are being prematurely demolished before they have reached the end of their technical life due to a loss of purpose and the inability to adapt to the current market. Utilizing the adaptable assets business model will lead to lower costs in converting the identified space while ultimately creating less waste. This is a win-win, both economically and environmentally.
Data
In 2000, the UK Department of the Environment, Transport and the Regions carried out a study on residential buildings. This study indicated that 46% of demolished buildings had a lifespan of between 11 and 32 years.
Other key data in this field came from Finland. The article Statistical and geographical study on demolished buildings published in 2014 in the Building Research & Information journal stated that between the years of 2000 to 2012 there were 50,818 buildings demolished, with the average age of residential buildings sitting at 58 years, while non-residential buildings were demolished at the 43-year mark.
Finally, in 2016 research performed within a selected cluster in the center of Liverpool, UK indicated some significant conclusions regarding the sustainability within the built environment. After a study exploring the extent of adaptation of the buildings surveyed, the research confirms the need to incorporate adaptability as a critical criterion in building design. Similarly, a recent report released by the Ellen MacArthur Foundation, in collaboration with Arup, supports this thesis.
Adaptable Assets business model in a few words
To better understand the importance of an adaptable asset business model, we need to focus first on retail real estate assets outside of the city. Often, buildings are designed for a single purpose and are forced to face global devaluations. Some real estate markets have planning regulations that facilitate the conversion of a building from office to residential. In other words, the structure adapts to new needs and uses. However, deconstruction or adaptation depends precisely on the local market and location conditions. That is why, as suggested in the Ellen MacArthur Foundation & Arup report, for a fairer application of the Adaptable Assets model, it is necessary to focus on location types rather than building types.
The players involved
Working on the development of such a model means designing multifunctional buildings. Most importantly, they must be able to host more than one use in their lifetime. This is why promoting retrofits is the only solution in place of demolition. Within this model, a new investment partnership is emerging. There will be one long-term investor and another short-term one. The first one invests in the whole structure, which lends itself to multiple functions.
On the other hand, the second one rents the structure only for a specific use, adapting it as necessary. Then, if the change in the market provides for a switch of use, a second stage takes place. In other words, a third short-term investor enters the scene. The latter can rent, adapt, and reposition the building on the market.
It is essential to differentiate the investors so that the structure is separated from each layer of the building. Indeed, the structure concerns the long term, while the layers the short term, and, therefore, differ according to function.
How to apply this theory
As suggested by the Ellen MacArthur Foundation and Arup, to design adaptable buildings requires a master planner to identify single-functional and adaptable areas. Some approaches, such as horizon scanning and scenario planning, can help. They allow us to set priorities and establish similarities between possible futures and scenarios. This is useful in creating the adaptability requirements necessary for the most rigid parts of the building, and essential for the design team of future changes. These are:
- Floor-to-floor height
- Floor plate depth
- Core positions and entrances
- Riser sizing
- Plant-room sizing and positioning
Adaptable Assets: an example
A demonstration of the functionality of the Adaptable Assets model could be a residential block with a certain number of units over a long operating period. A decrease in residential demand and, therefore, an increase in vacancies allow us to develop a careful consideration.
Applying the linear model to a building with these conditions requires its demolition when vacancies reach 60%. In this scenario, the investor proceeds with the eviction of the remaining residents; the demolition of the building, and then transforms it into a more logistical use.
On the contrary, the circular model foresees in advance the possibility of a downturn and, following this perspective, allows for more of a loose-fit during the building’s construction. So, as the structure gradually begins to depreciate, the building adapts the space for micro logistics use. The modifications only affect the building’s services and fittings. This involves only minor work, such as removing the partition walls to create a single open space on each floor; or adding a more useful lift that allows larger items to enter and exit the building. In this perspective, the structure maintains its foundations and building envelope.
Adaptable Assets and financial performance
A brief analysis of financial performance can complete the implementation of the Adaptable Assets business model. It is possible to use the example proposed by the Ellen MacArthur Foundation & Arup report as a reference. Their research concerned the application of the model to a residential, 15-unit apartment building in Aarhus – Denmark – located within a larger masterplan. They assumed that all tenants would maintain the same income throughout the life of the building, i.e. 50 years. This gave an Internal Rate of Return of 3.7%. As stated above, the linear model provides for demolition and reconstruction at the end of the building’s life. Applying this design to the building in Aarhus allowed for an IRR of 0.3%. Alternatively, the progressive implementation of the circular system on each floor, convertible into a micro logistics use, provided for IRR of 3.6%.
Sensitivity Analysis: outputs
To evaluate the robustness of the assessments, the Ellen MacArthur Foundation & Arup decided to proceed with a sensitivity analysis. Using this, they were able to examine how much of their results could be affected by variables in order to identify results from questionable assumptions. The sensitivity analysis carried out concerned four points:
- Different market down-turn scenarios
- The additional cost associated with design for adaptability
- Cost of conversion
- The annual rental income of the second use
Three scenarios are proposed in the report:
- Short-term loss of building value
- Long-term loss of building value
- Medium-term loss of building value
The first two should be compared with the third one, assumed for the circular base case scenario. For the latter, no additional initial costs associated with the design for adaptability were considered. For this reason, the research conducted by Ellen MacArthur Foundation & Arup needed further analysis to assess the impact of the additional initial costs on IRR. The results obtained indicated a break-even between the circular and linear models in the medium-term scenario, with a 110% increase in construction costs.
Similarly, the report did not directly consider the cost of converting a building from one use to another. For this reason, the Ellen MacArthur Foundation & Arup once again conducted a further analysis of the impact of conversion costs on IRR. Comparing with the initial construction cost, the result for the medium-term scenario is a conversion cost of 110%.
Finally, the report analyzed the impact on IRR of changes in rental income resulting from the second use of the building, verifying an increase for this option.
Adaptable Assets and the Circular Economy
Given this data, it undoubtedly confirms the positive impact of this model on the built environment. The Adaptable Assets business model aims at maintaining the maximum value of a building for as long as possible, therefore, not only increasing but fostering a long life span of a building. This pushes towards a design that provides a lower conversion cost than demolition and renovation, thus allowing for both environmental and economic gain.