Commercial Real Estate – Go “Green”
The “business world” realizes the need to urgently cut carbon emissions across commercial real estate, and we’re increasingly seeing these changing attitudes reflected in the financial value of commercial buildings.
In recent years, the “green premium,” where sustainability-focused companies pay a higher price to rent or buy buildings with certified sustainability credentials does reflect their values.
Green real estate moves up the corporate priority list
JLL’s “Decarbonizing the Built Environment” report found that 63 percent of leading investors strongly agree that green strategies can drive higher occupancy, higher rents, higher tenant retention, and overall higher value.
We’re quickly reaching a tipping point as sustainability moves up the corporate priority list. Increasingly, conversations about commercial real estate are propped by “brown discount.” Basically, buildings that fail to live up to higher environmental standards will be seen as less valuable. The size and scale of “brown discounts” will rise rapidly in the coming years. The focus is shifting from being in a prime location with sweeping views from the top floors to net-zero carbon, promoting health and wellbeing, and being resilient to climate change.
Benefits of Green Building in Commercial Real Estate
World Green Building report showed compelling business cases for building green: “Green buildings an average of 10.5% reduction in operating costs in the first year and a 16.9% savings over five years.
- Upgrades to existing buildings brought a bigger reduction in operating costs globally, with green renovations at 11.5% and retrofits at 17%.
- Construction of new green buildings and green renovation increase the asset value of buildings by upwards of 9%.
- Improved quality of life for occupants, such as health and well-being is one of the most important drivers.
- Encouraging sustainable business practices among occupants is also another important driver.
- Reaching net-zero/net-positive energy targets for buildings to control embodied carbon.
Sustainability Trends in Commercial Real Estate
Sustainable, responsible, and impact investing (SRI) is a powerful investment that considers environmental, social, and corporate governance (ESG) criteria. Especially, when making commercial real estate investment decisions. Socially conscious investors use these standards to produce long-term competitive financial returns and a positive impact on society.
According to a January 2022 Bloomberg Intelligence report, the total assets managed under the umbrella of values-based, socially responsible, and impact investing had grown from $22.8 trillion in 2016 to $30.6 trillion in 2018, then surpassed $35 trillion in 2020.,
Bloomberg Intelligence predicts that global ESG assets under management may exceed $41 trillion this year (2022) and climb to $50 trillion by 2025. This trend isn’t expected to slow, with companies, commercial real estate development projects, and central banks leading the assets. The rise of ESG assets is a “perfect storm” generated by the pandemic and the green recovery efforts in the U.S. Pressure is increasingly placed on companies, developers, and governments to increase their efforts to build a more sustainable future.
Building owners, commercial real estate investors, architects, engineers, and contractors plan to boost their green building strategies and use more green building products and systems. It is expected to see growth in the use of green products in the areas of electrical, mechanical, building automation systems, thermal and moisture protection, construction waste management, and building materials (flooring and mass timber structural systems), as well as finishes and furnishings.
The top reasons are increasing green building efforts are lower operating costs, environmental regulations, healthier buildings for occupant wellness, and simply the right thing to do.