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.

In current market conditions, the economic benefit makes an even stronger case for action from investors and corporate tenants than emissions reductions alone.

The economic case for energy efficiency

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The economic case for electrification

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The economic case for clean energy strategies

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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.

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. 

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.