The industrial sector is uniquely positioned to scale energy and sustainability solutions that can drive real progress in decarbonizing the built environment, as well as operational security and economic value for both owners and occupiers.

Delivering energy solutions

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Delivering resilience

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Protecting value

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Considering the increasing regulatory focus on energy and carbon, sustainable warehouses enable owners and occupiers to stay ahead of compliance requirements. Whether it's the evolving building performance standards adopted by 13 U.S. cities, with 30 more expected by 2026, or the European Union's Corporate Sustainability Reporting Directive (CSRD) with first reports due this year, warehouses that demonstrate enhanced energy and emissions performance will remain resilient against new regulations.

It is also notable that sustainable practices in the sector influence more than solely environmental factors. For example, the warehouse industry experiences significantly higher employee turnover rates. Investing in sustainable building features that improve ventilation and indoor air quality, offer access to green spaces and comfortable temperatures and work environments can enhance employee retention for occupiers.

Navigating solutions

Sustainability and energy priorities within the industrial sector are more nuanced as uses vary significantly within this property type. Leading users within warehousing and distribution properties typically favor onsite energy, efficiency and EV infrastructure, while manufacturing companies tend to prioritize energy efficiency and security, as well as waste management. Generally, as occupiers understand what they need to do to show progress on sustainability commitments, building upgrades that allow owners to communicate measurable improvements are key differentiators. Already, there is a growing awareness around building energy and emissions performance, especially in Europe where CRREM (Carbon Risk Real Estate Monitor) is currently being reviewed for the sector. Furthermore, many industrial occupiers form part of their customers' Scope 3 emissions, creating additional pressure for these occupiers to decarbonize their own operations to meet the sustainability goals of their entire value chain.

Measurable targets:

Energy efficiency: A reduction in Energy Use Intensity (EUI)2 of 50-60% below current building averages, including net reductions achieved through onsite energy sources.

Embodied carbon: A reduction of embodied carbon3 by ~40%.

Clean energy produced onsite and EV charging infrastructure can generate additional revenue streams for owners. We’ve already seen many instances of industrial owners monetizing the income from such solutions through increased rent or direct-pay through structures like Energy as a Service (EaaS).

The case for solar

Industrial facilities, with their extensive flat rooftops, are ideally suited to harness significant amounts of energy from direct sunlight though onsite power. If fully utilized, industrial warehouses across the U.S. could produce, on average, 176% of their annual electricity needs. According to a 2022 study, only 5% of warehouses in the UK have rooftop solar, yet leveraging 18.5 million acres of unused warehouse rooftop space would more than double the country’s solar capacity. In the Netherlands, the adoption of onsite solar on warehouses is nearly standard practice for all new builds or where the construction of existing buildings allows. However, in most other industrial markets, deployment of onsite solar remains slow, presenting a substantial opportunity for sustainable energy expansion and cost reduction.

Historically, warehouse owners have hesitated to invest in rooftop solar systems due to high upfront costs and limited options to sell excess energy, especially when tenants don't fully utilize the generated power. However, a shift is underway, particularly among leading industrial property owners. Prologis, Brookfield and Lineage Logistics were named among the top 10 companies by installed onsite solar capacity in SEIA’s Solar Means Business 2024 report. As investors become more adept at navigating these complex structures, we anticipate a significant impact on property valuations.

The case for EV charging

Fleet electrification is emerging as a significant decarbonization lever for industrial occupiers. Collectively, the occupiers researched in this study alone will increase their EV fleet size sixfold, amounting to 16.6 million electric fleet vehicles on the road by 2030. As companies transition their fleets from fossil fuels to electric, they are shifting fuel expenses into real estate costs through the use of onsite charging infrastructure. This shift brings significant implications for site selection criteria and overall CRE strategies.

Our EV Solutions team has found that electrifying trucking fleets can typically save operators 20-25% of the total cost of operating those trucks (excluding labor). For context, trucking expenses represent 44% of a logistics company’s total costs, with approximately 30% allocated to labor and the remainder to energy (fuel), the purchase/lease of trucks and maintenance. This 20-25% cost reduction on fleet operations would usually translate to 6-8% savings in overall Profit and Loss (PnL) for logistics companies. Therefore, access to affordable and reliable energy for fleet electrification becomes a key competitive requirement – a requirement that is already impacting real estate decisions and site selection strategies today, especially among leading warehouse and logistics users.

This transition has substantial implications for power capacity at industrial sites, as properties will need to be prepared to support long-term fleet electrification efforts. This means not only installing EV charging stations but also ensuring that the site's electrical infrastructure can handle the increased power demand. For many existing facilities, this may require onsite energy solutions, significant upgrades to electrical systems and potentially working with local utilities to increase power capacity. Providing these solutions offers clear opportunities for owners to generate additional returns, especially through integrated EV and onsite energy and storage strategies.

Other sustainability advances include rainwater harvesting systems, which, while not yet widespread, are emerging as a frontier solution for industrial properties. They offer the capability to collect rainwater for onsite use, a solution that is particularly valuable for water-intensive operations such as cold storage facilities and advanced manufacturing sites.

Case study: Link Logistics’ Energy Solutions product

The "split incentive barrier" in real estate hinders decarbonization efforts across sectors, but particularly in industrial given the prevalence of triple-net lease structures. Under triple-net leases, tenants pay utilities, so landlords investing in energy improvements don't directly benefit from the savings. This discourages both parties from funding such upgrades, necessitating a new approach to align incentives and promote energy efficiency investments.

Link Logistics has developed a proprietary energy and utility management amenity where it aims to transfer the management of energy and utilities from selected tenants to Link Logistics’ in-house team of energy experts and deploy a ‘measure-reduce-offset’ approach to advancing decarbonization at scale for its properties and drive shared value for themselves and their tenants. By accessing the data necessary, Link Logistics is able to identify opportunities to improve energy efficiency and deliver measurable benefits to tenants, lowering operating costs while achieving an attractive return on investment.

Defining success: Since the program’s inception in 2023, more than 1,000 customers have enrolled. The firm has executed 106 million square feet of LED projects, reducing energy consumption at Link Logistics’ warehouses by 98,400 MWhs and carbon emissions by 43,453 metric tons - equivalent to the carbon sequestered by 43,586 acres of U.S forests in one year. This has translated to a total benefit of US$0.16 per square foot for enrolled customers, averaging 12% savings on utility bills.

Tenants in action

Top occupiers are integrating energy and sustainability priorities into their leasing decisions. As pressures regarding energy use and carbon commitments increase, this trend is set to expand rapidly in the coming years.