The next few years present a unique opportunity for building owners and occupiers to leverage the net zero transition to drive economic value.

• The opportunity is now. With occupiers increasingly looking to lease space aligned with their own corporate emissions targets, there is a ripe opportunity for owners and investors to act now to close the supply gap for low-carbon space.

• Three action areas to focus on. Successfully decarbonizing buildings depends on targeting three key elements: energy efficiency, electrification and clean energy sources.

• Creating economic value. The capex invested in addressing these three action areas results in lower operational costs, secure energy, regulatory resilience and improved employee attraction.

Successful decarbonization of building operations means the prioritization of three key action areas: optimizing operations through energy efficiency measures, electrifying operations and employing dynamic clean energy strategies. These elements are inherently intertwined and effective building decarbonization will rely on the combined success of all three.

The energy transition necessitates a shift in mindset – from one that sees energy efficiency as a ‘nice-to-have’ to one that sees it as a fundamental clean energy source and cost-savings strategy. Improving a building’s energy efficiency is the quickest way to reduce opex and cut emissions – and a critical first step in the wider energy transition. In fact, a study by Berkeley Lab found that such demand-side solutions across buildings in the U.S. would avoid over US$100 billion in power sector costs by reducing the investments needed to scale carbon-free energy capacity.

Light to medium energy retrofits can unlock between 10% and 40% in energy savings, depending on property type. Across the buildings in our study, this means US$2.9 billion in annual energy savings under a light retrofit scenario and up to US$11.4 billion in savings under a MEP scenario – equating to US$0.49 to $1.94 per square foot savings on average. 

When it comes to buildings – as well as transport – the net zero transition means a transition towards electrification - and when done right, efficiency gains and electrification go hand-in-hand. Electric heat pumps have become an effective solution to efficient electrification thanks to operating, equipment and installation costs reaching cost-competitiveness in many markets. Today’s models are 1.5 to 3 times more efficient than electric resistance heat and up to 4.5 times more efficient than conventional gas boilers. While heat pumps have different space needs than their less efficient counterparts, they are a promising solution for existing buildings and a vital solution for new buildings, especially those in colder climates.

Across the nine markets with energy input data available, Washington, D.C. and Seattle have the greatest share of fully electrified buildings² with 51% and 44% respectively. All other markets have less than 30%. However, not all electrification is equal and to date, electrification has typically been done through electric resistance heating, without efficiency in mind. What’s more, most utility grids are still heavily dependent on fossil fuels. Consequently, the link between lower emissions and electrification today is much less evident (as compared to lower emissions and energy efficiency). It is only in Seattle where buildings show a linear trend – the more energy that comes from electricity, the lower the emissions and all-electric buildings have the lowest emissions in the city. 

As more regions deploy clean energy, it is becoming the most cost-effective choice of fuel. In fact, the latest solar panels generate the cheapest form of electricity in human history, according to the IEA. 

In Europe, renewables have become the cheapest source of electricity generation. Producing a kilowatt-hour of power from solar is now 10 times cheaper than by fossil fuel gas. Within the EU, electricity consumers are estimated to have saved EUR 100 billion during 2021-2023 as a direct result of newly installed solar PV and wind capacity, after fossil fuel prices spiked following Russia’s invasion of Ukraine. In 2023, the average wholesale price of electricity would have been 15% higher without these capacity additions.

Many markets in the U.S. are also benefiting from similar trends. In Texas, the scale of renewables from 2010 to 2022 decreased wholesale electricity costs in the state by US$31.5 billion. Seattle benefits from the state of Washington being a leader in clean energy generation for decades. Over 80% of its power is generated from carbon-free hydroelectricity – and Seattle energy consumers benefit from 45% cheaper electricity bills than those in New York City, where the state grid is 62% dirtier in terms of grid emissions. On average, the lowest emitting buildings in the study can be found in Los Angeles and Seattle – these are markets with more temperate climates and cleaner energy grids. Among fully electrified buildings, it is only in Seattle where their emissions concentrate on the low end.

As cities look to advance on their net zero goals, many have turned to Building Performance Standards (BPS). BPS place limits on energy use or emissions from buildings that gradually decline in line with Net Zero by 2050. These policies include hefty penalties for noncompliance. Take the BPS passed by New York City, Boston and Seattle; 2030 limits entail a median annual per square foot penalty of US$0.29 – US$2.00 for office properties and US$0.29 and $1.50 for multifamily.³ 

Owners, investors and developers

Reducing emissions in a building – and much more so across a portfolio – is a complex task. Success is not a copy-and-paste approach but a relative mixture of energy efficiency, electrification and clean energy strategies that are best-fit to the building in question. Yet the tools for success are consistent, and more importantly, most are ready to deploy today. When done well, asset decarbonization becomes a market opportunity for those who act first – and an economic risk for those who wait. 

Occupiers

We are reaching a point where even the most advanced corporates with the most ambitious targets (and budgets) will be unable to find available, low-carbon space that meets their needs. Occupiers must become active players in decarbonizing the built environment, partnering with their landlords and co-investing in strategies that make low-carbon buildings a reality. 

City governments

The phrase “you can’t manage what you don’t measure” comes to mind when considering the important role cities play in driving decarbonization in the built environment. Coverage of U.S. cities in this study is greater exactly because of local reporting mandates that make building-level energy-use data publicly available. Access to this data allows local jurisdictions to follow-through with policy that is more effective in driving down emissions, like Local Law 97 in New York and Boston’s BERDO. While BPS that force improvements in energy efficiency or emissions, or incentive frameworks that promote building improvements are necessary, it is the ability of local governments to create a standardized level of transparency around building performance that is key to enable informed action.

Note on data coverage: Our research compares building-level energy use and emissions data across 14 global markets: Amsterdam, Paris, Rotterdam, Sydney, Melbourne, Singapore, Boston, Chicago, Denver, New York, Los Angeles, San Francisco, Seattle and Washington, D.C. 

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