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.

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. 

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.

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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