In the current economic landscape, investors and occupiers face challenges in justifying investments in retrofitting and futureproofing real estate. JLL’s latest report, “The Commercial Case for Making Buildings More Sustainable,” identifies three crucial factors that should take precedence in decision-making for creating a resilient and sustainable built environment.
1. Rising Demand for Sustainable Buildings
In numerous global markets, corporate demand for buildings with sustainability credentials is on the rise, influencing office market dynamics. Across 20 major office markets, including New York, Paris, and Singapore, only 34% of the projected demand for low-carbon workspace will be met in the coming years.
This discrepancy signals a shortfall in meeting the increasing demand, with notable differences at a country level. For instance, due to stringent regulations, Australia anticipates a 70% gap between future demand for low carbon space and the current pipeline, surpassing Singapore’s 56%.
The perception of sustainable buildings is evolving, with tenants increasingly seeking environmental performance indicators alongside green certifications. While rental premiums for certified buildings remain healthy in global office markets, there is a shifting industry trend. In Asia, markets attract an average of 9.9% additional rental premium for green-certified, class A office stock.
Elke Kornalijnslijper, Head of Sustainability Services, Asia Pacific, JLL, said, “The business case for investing in decarbonizing and resilience across real estate portfolios is getting even stronger.”
2. More Restrictive Regulations
Though market forces are currently outpacing regulations, new legislation looms on the horizon at international, national, and city levels. Policies from 16 global cities cover carbon, energy, buildings circularity, biodiversity, and resilience. Cities like New York, Paris, and Amsterdam, labeled ‘Climate Progressive,’ are implementing diverse policy instructions, with a focus on new and existing commercial and real estate.
For example, New York has introduced pioneering local laws, Paris is considering embodied carbon, and Singapore is adopting a holistic approach to greening its buildings.
3. Mounting Costs from Physical Climate Risks
Increasingly frequent and intense weather events pose a growing concern for real estate. Building a compelling business case involves understanding the risks of business operation disruption and potential damage to buildings. However, assessing climate risk faces challenges due to the lack of consensus on standardization, with varying approaches considering value at risk in terms of insured value or changes in asset value or replacement cost.