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.

The real estate industry finds itself at a crossroad. Market conditions are compelling owners and occupiers to prioritize cost-cutting opportunities wherever they may arise. At the same time, corporate commitments and regulatory pressures leave little to no room for building owners to look past the global call for reducing emissions. However, by undertaking comprehensive planning and taking decisive action, investing in decarbonization becomes a strategic economic opportunity. 

JLL has undertaken a unique analysis of energy and emissions performance data from 46,600 buildings in 14 global cities and across 11 sectors to uncover the dynamic landscape of operational emissions in the built environment – and highlight the economic opportunity that exists in improving building performance today. The data has been compiled and aggregated from local energy benchmarking and reporting requirements. Together, these buildings represent 5.9 billion square feet of commercial space (or 550 million square meters) and a total of 120,700 GWh of annual energy consumption, enough to power 11.5 million homes for a year. 

Constructing an energy-efficient, low carbon new building is a comparatively much easier feat than achieving significant energy and emissions reductions in an existing building. Both must be done to decarbonize buildings but ensuring that new product is low carbon from the get-go should be standard across all markets. As specified in SBTi’s newly announced Buildings Guidance, all new developments and major renovations must be designed so that energy performance shows a 70% improvement from the regional/country median for that building type. 

Heating and cooling systems typically make up the bulk of a building’s energy use, so addressing them will have a significant energy and emissions - as well as cost reduction - impact. In a standard office building, about 40% of total energy use is from its HVAC system. Consequently, EUI significantly increases during the winter months. In Washington, D.C. for example, average EUI across its office stock increases by as much as 60% in January compared to June while natural gas makes up a much greater share of its energy use (46% on average in January, compared to 16% in June), meaning onsite emissions also spike. 

The good news is that, for buildings, there are already highly energy efficient measures and technology solutions available for deployment today. Furthermore, these improvements often also serve to enhance comfort levels for building occupants. JLL’s Hank uses machine learning, energy modelling and outside data sources to continuously optimize all HVAC equipment, reducing energy consumption and costs by 20% while also improving indoor air quality and tenant comfort. This combination of lower costs, reduced emissions and better user experience makes assets more attractive to today’s occupiers.

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. 

Many jurisdictions are now ensuring new construction is all-electric. In 2019, Berkeley, California in the U.S. became the first municipality to require all new construction to be all-electric, and since then about 100 other cities have followed suit, including New York, San Francisco and Los Angeles. 

Utilizing electricity in lieu of onsite fossil fuels means Scope 1 building emissions have been dramatically reduced or eliminated which, as a building owner, is a clear lever to pull. To meet climate targets, corporate occupiers have increasingly sought Net Zero Carbon buildings but have discovered that in reality, there are few to none available. As an interim solution, they have sought buildings that are 100% electrified and taken it upon themselves to secure clean energy supplies through onsite and/or offsite procurement strategies. As a result, because of market demands and its ability to reduce utility bills, efficient electrification has the potential to significantly increase building value. 

BPS vary across jurisdictions in terms of the targeted measure (usually Carbon Intensity (CI) or EUI), the limits set and the penalty amount as they take local nuances like energy grid mix, climate and city-wide targets into account. Yet, because they all share net zero goals by 2050 or earlier, their limits provide a solid benchmark to understanding the performance gap of real estate today. Denver’s BPS for example targets EUI while New York City’s, Boston’s and Seattle’s sets limits on CI. If faced with these leading BPS, around 66% of buildings in our study would face fines by 2030, given current energy or emissions performance levels. 

<sub>1. Under CRREM, the term ‘stranding risk’ refers to potential write-downs and devaluations due to direct climate change impacts and the transition to a ‘low-carbon economy’. Estimates of stranding risk were reached using CRREM market- and sector- specific decarbonization pathways.
2. Across office stock.​
3. Given current building performance levels.</sub>