This study reveals that 65% of office and 75% of multifamily buildings face stranding risk by 2030 if action isn’t taken to improve building performance.¹

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. 

Improving energy efficiency is also a crucial element of a successful energy strategy as it allows consumers to mitigate challenges from energy price volatility and reduce the risk of overwhelming aging grids. 

According to the IEA, energy efficiency has the potential to deliver the second largest contribution to cutting down CO₂ emissions globally. At a building level, lower EUI has a direct linear relation with lower emissions in all cities in our study. However, the marginal improvement in emissions from a unit improvement in energy efficiency becomes lower as the grid gets cleaner. This is why the trendline is steeper in markets with cleaner grids, like Paris and Seattle, and flatter in markets like Melbourne and Denver where energy grids are much dirtier. 

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. 

The global transition of utility grids towards carbon-free energy is critical but cannot be the only solution in securing clean energy sources. Large-scale and energy-intensive users in particular may not have local grids capable of supporting a fully electric utility option. They will require more comprehensive energy strategies that include onsite renewables, if feasible, and smart procurement strategies through mechanisms like Virtual Power Purchase Agreements (VPPAs).

If done well, the net zero transition presents a market opportunity for building occupiers, owners, developers and investors to create economic advantage. Those who accelerate the deployment of smart energy strategies that prioritize energy efficiency and electrification alongside demand flexibility and aggressive clean energy procurement stand to gain most.