Orchard Street Investment Management is scaling up what has become one of the UK's most active real estate decarbonisation investment programmes with a major investment drive of £2B to £3B over the next few years. 

The firm's latest evergreen decarbonisation fund has already attracted two rounds of commitments from local government pension schemes keen to put money to work in impact investment and making assets more sustainable while also hitting return targets.

Far from seeing sustainability and healthy profits as mutually exclusive, the company has doubled down on an open-ended, UK-only strategy that has seen it expand into a diverse range of assets.

“We're taking brown assets that are discounting because they're not fit for purpose, upgrading them to make them better for the occupants, reducing occupational costs for the tenant, allowing them to pay a little bit more in rent, and creating a more resilient, future-proofed asset,” Orchard Street partner Tom Chadwick said.

Chadwick and Head of Sustainability and ESG Kathryn Barber told Bisnow where they see the big investment opportunities, why secondary offices are a retrofit headache but living offers untapped potential, and why what Chadwick calls a “roll-your-sleeves-up” active asset management approach is the company’s mantra.

Orchard Street, which has £1.8B of assets under management, completed the first acquisition on behalf of its £400M Orchard Street Social and Environmental Impact Partnership in January, when it acquired the seven-unit, 89K SF Euroway Trade Park, a multi-let industrial estate in Aylesford.

It is installing solar panels and electric vehicle charging hubs at the freehold property, electrifying all units across the estate, and improving the energy performance certificates to A and A+ ratings from C to E ratings.

The acquisition followed the first close of the fund in November. Cornerstone investment came from Brunel Pension Partnership, one of the UK’s LGPS pools, and Orchard Street’s partners and its senior team co-invested. 

Orchard Street secured an additional £250M for the fund in May, setting it up to build a portfolio with a gross asset value of more than £750M. It is focused on industrial, retail parks and the living sectors, particularly single-family housing and senior living, with typical lot sizes ranging from £25M to £75M.

The open-ended, UK-only fund is designed to be scalable and is focused on acquiring assets where Orchard Street can invest capital in decarbonisation-led management plans.

Having deployed around £200M within the first six months, the company is aiming to reach £2B to £3B over the next few years, with the plan to recycle the capital into new opportunities every four to five years once each asset has been remediated.

Orchard Street had already built its reputation around buying underperforming multi-let assets and improving them through intensive asset management. By the late 2010s, however, environmental improvements had become as important as traditional refurbishment work.

Rather than simply embedding sustainability into existing funds, Orchard Street decided to test whether investors wanted a dedicated strategy focused on environmental improvement. That led to the launch of Orchard Street's first social and environmental impact fund in 2022, with backing from LGPS capital.

Success there has fed into more strategies centred specifically on decarbonisation.

Improved buildings reduce occupiers' energy costs, improve tenant retention, increase rental prospects and reduce obsolescence risk, Chadwick said. 

At the 135K SF Taurus Park industrial estate in Warrington, which Orchard Street bought in July, replacement of gas boilers with low-carbon heat pumps, installation of solar panels, the upgrading of lighting to LEDs, and the installation of EV charging points have all contributed to improving the EPC rating from a C to an A+. 

And it has reduced energy bills for tenants by a level equivalent to 5% of the rent roll. 

More broadly, green-certified commercial buildings can achieve a 6% to 10% rent premium and 10% to 15% valuation over comparable noncertified properties, according to CBRE.

The U.S. Green Building Council found that LEED-certified buildings typically achieve 94% average occupancy, compared to 89% for noncertified buildings, with operating costs typically running 15% to 25% lower. 

In effect, environmental investment becomes another form of value creation, and that thinking is shaping where Orchard Street is deploying capital.

The evergreen fund has acquired four multi-let industrial estates and two retail parks so far, sectors chosen not only for their refurbishment opportunities but because they benefit from strong structural demand drivers.

Chadwick and Barber said Orchard Street is looking for assets in strong locations that have been underinvested from a sustainability perspective and where active management can create measurable improvement. 

“We have to be able to write a credible and measurable impact plan,” Chadwick said.

“It’s all about additionality, assessing the positive outcome that occurred because of our investment that would not have happened otherwise.” 

The fund cannot acquire an asset without an impact business plan, endorsed by an external fund impact adviser as material and ambitious.

Chadwick identified urban industrial land and supply chain reconfiguration as strengthening occupier demand for well-located logistics space. Retail parks, meanwhile, have emerged as one of commercial real estate's strongest performing subsectors, helped by years of little new supply.

“We've got to buy in the right sectors and into the right megatrends,” Chadwick said of attracting investment. “We're engaging with occupiers, we're doing regears, we're pushing rents on, and in retail, they recognise they don't hold the cards they might have held 10 years ago.”

However, not every sector offers the same opportunity. Chadwick said it is still very difficult to make the numbers work for traditional offices that are not in prime positions in major cities. Refurbishment costs have risen sharply, while many vendors remain reluctant to reduce pricing sufficiently to reflect the investment capital required.

“It's very hard to get an average asset in an average city to stack up,” Chadwick said. “Unless you're in London, Edinburgh, Bristol, Manchester, maybe Birmingham, it's very hard. The entry price is always a bit sticky. Landlords are very keen to sit on values and not drive them down to a clearing price.”

Rather than relying solely on headline sustainability measures, Orchard Street follows what it describes as a carbon hierarchy, according to Barber.

Typically, the first priority is reducing energy demand through better insulation, glazing and building fabric, with smart metering installed to identify wasted consumption before electrification replaces fossil-fuel heating with technologies such as air-source heat pumps. Photovoltaic systems are then added alongside wider improvements that reduce operational costs.

Embodied carbon — the carbon created from construction, development and retrofit of buildings, rather than their operation — is treated with equal importance, influencing everything from material specification to local sourcing. Those interventions are guided by a detailed proprietary impact framework containing mandatory performance targets benchmarked against industry best practice and independently verified.

“Governance has become increasingly important as institutional investors seek greater assurances that impact claims are measurable rather than aspirational,” Barber said.

Orchard Street adopted the Financial Conduct Authority's Sustainability Impact label to gain credibility in institutional markets.

Barber said that instead of imposing identical interventions across every asset, projects respond to local needs. In one example, a retail asset is bringing in a gym operator offering subsidised memberships and women-only facilities after local analysis identified health deprivation, income deprivation and a significant Muslim population.

The firm is also investing heavily in green skills, partnering with colleges and creating work placements to expose students and lecturers to live decarbonisation projects. These initiatives reflect another shift among institutional investors, particularly within the LGPS universe.

“Investors increasingly want capital invested locally, creating measurable regional benefits alongside financial returns,” Barber said. “I think probably what they want to do more of is local investment. They can create those jobs locally and have that regional impact locally.”

The company is also looking at several opportunities to work with national operators in fields such as supermarkets and logistics to decarbonise their estates across the UK, and Orchard Street is exploring opportunities in retirement living and residential rental communities, sectors that naturally combine social impact with environmental performance.

Unlike many newly built homes that achieve respectable EPC ratings but stop short of full electrification or battery storage, Orchard Street also believes there is an opportunity to create genuinely net-zero operational housing with dramatically lower household energy bills. Chadwick said he sees movement toward far higher standards for new housing.

“Our investors want to see sustainability, social impact and strong returns, and it’s up to us to demonstrate that these can go hand in hand.”

Attendees at Bisnow’s Building for the Future event on 8 October will hear from key figures across the industry on how they are profiting from decarbonisation. Sign up here.