53% of top 100 industrial & logistics firms have net zero targets

AUSTRALIA, 27 MARCH 2023 – JLL analysis has found that more than half of Australia’s top 100 industrial and logistics occupiers have net zero targets, with nine of the top 100 real estate occupiers aiming to reach Net Zero Carbon by 2030 or earlier.

Some of the high priority strategies listed by Australian occupiers include improving energy efficiency (82%), enhanced green/renewable energy generation such as rooftop solar panels (64%) and reducing overall carbon emissions generated over the whole life of their building (39%)¹

In JLL’s Research Report, ‘Accelerating Logistics and Industrial sector sustainability’, JLL notes that sustainability related financial disclosure requirements, tightening regulatory pressures and intensifying consumer and stakeholder expectations are all conspiring to turbo-charge the sector’s efforts in reducing the carbon footprint of both developers and occupiers.

The realisation can be expected to press the sector into more urgent action, according to JLL, as clear benefits emerge such as future green premiums in asset values and rents and the overall mitigation of ESG risk in the decades ahead.

“Investors and developers have enjoyed the extraordinary performance of their assets in recent years,” said Annabel McFarlane, JLL Head of Strategic Research – Australia. “But, as markets rebalance, the relatively small group of largely institutional industrial property owners that are taking a proactive approach to sustainability are likely to gain from potential green premiums in asset values and rents. 

“Though operational cost savings also can justify the investment, to date there has been limited evidence of a rental premium for sustainable assets. It’s very hard to prove the implications of demand for sustainable assets from an occupier point of view while vacancy in most Australian industrial markets is so low. However, this is likely to be a changing thematic.

“As developers respond to strong occupancy drivers and more supply comes on stream, new assets with built-in sought-after sustainability features – or repositioned existing assets – are likely to lease faster and with higher rents to tenants with environmental targets. 

“From a capital value perspective, terminal yields will be sharper, debt costs lower and pricing differentials will start to emerge reflecting lower re-leasing and capex risk attached to sustainable assets.

“More importantly, they are mitigating ESG risk that will become amplified in coming decades as Australia’s property industry transitions to Net Zero Carbon,” said Ms McFarlane.

Australia's top 100 industrial occupiers have accounted for 22% of all gross take-up since 2007.

The JLL report identifies key drivers in this shifting real estate landscape including the desire of logistics companies to understand their current carbon footprint and find cost-saving pathways to meet committed emissions reduction targets.

That ambition extends across the supply chain, according to Renae Gasmier, JLL’s Head of Sustainability Consulting – Australia, with companies also looking at ways to cut their indirect or Scope 3 emissions.

“The penny has begun to drop for organisations with Scope 3 in their net zero targets, which sees collaboration across your supply chain like never before. At the nexus of renewables, ‘electrify everything’ and improving building performance, this creates both sustainable and commercial value for all parties.

“In the last six months, we have seen a visible shift in our smart industrial occupiers and landlords, who are looking to leverage this value. As a result, our Sustainability Consulting services have been in unprecedented demand,” said Ms Gasmier.

The Report notes that energy efficiency is considered the highest propriety by a significant margin of industrial and logistics occupiers, with 82% of respondents in Australia indicated this to have a high priority.

Real estate contributes to Scope 1 emissions; that is, the carbon emissions physically occurring in assets owned or leased by an organisation. Therefore, occupying a net zero building will be critical in helping corporations achieve their net zero goals.

“For an occupier, sustainable real estate can enable reduced operational costs through improved energy efficiency of the building coupled with generating and storing green energy onsite,” the JLL Report notes. “For an occupier with a large vehicle fleet, the consideration of fuel switching to a renewable source is now coming into play and, therefore, identifying if existing real estate will be able to cope with the complexity of requirements.”

“These net zero value drivers will see landlords and occupiers increasingly needing to work in partnership choosing the route between extending leases on existing assets that have a net zero retrofit plan or moving to new net zero builds.”

The report also notes that owners of industrial real estate could entice tenants with net zero ambitions by generating onsite renewable energy with battery storage via PV roof-top solar panels so as to run facility operations and fast onsite electric vehicle (EV) charging stations, among other green initiatives.

Ms McFarlane concluded, “The findings in our latest report are supported by JLL’s Global Future of Logistics survey completed in 2021, which asked JLL logistics and industrial experts globally to respond on behalf all tenants and occupiers. 

“Whilst globally 53% found that occupiers are taking at least limited sustainability action, in Australia this figure is 67%, which indicates that Australian occupiers are more climate conscious than their APAC and Americas peers and only slightly behind the responses from EMEA,” she said.