Turning risk to opportunity: rethinking value creation in aging places and spaces

The built environment accounts for up to 42% of global emissions annually, driving pressure from the public and private sector onto building owners to decarbonize properties. Even with the rate of building emissions beginning to flatline, to meet net-zero targets, the scale of retrofitting will need to accelerate to address the more than 86 million square meters of office product in need of near-term capex across the top eight markets for regulatory stranding risk due to tightening compliance standards alone. 

While sustainability requirements also incur upfront expenses, there is an impressive return on investment over an asset’s lifecycle. Whole-building retrofits involving a 40% to 65% energy use reduction have an average savings of $31 per square meter per year. If applied under a medium scenario for global at-risk office product in the eight highest-risk markets for stranding, this would yield $2.7 billion in annual energy savings alone for institutional office owners, all while tenant and investor demand for low-carbon buildings continues to increase. 

Considering the geographic concentration of emissions, the rewards from decarbonization scale rapidly as well. For example, over 52 million square meters of current office assets across Boston, Washington DC, Paris, London, Seoul and Tokyo are likely at risk of functional obsolescence, but over 60% of emissions in these areas originate from the built environment, creating momentum to accelerate wholesale retrofitting and meet net-zero targets. 

Even with asset classes earlier in their life-cycle journeys, such as data centers, sustainable solutions such as electrification and decarbonization will be important given the sectors’ significantly higher site energy use intensity, as compared to other, potentially older asset classes.