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. 

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.

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).

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>