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  • Writer's pictureKaren Fletcher

The SectorScope Insights: How clients are tackling estate decarbonisation

Updated: Aug 1, 2023

The SectorScope reports on a JLL webinar where clients and property managers reveal how they tackle the challenge of decarbonising sizeable real estate portfolios.

JLL is one of the world's largest property investment and asset management companies. In its recent webinar on routes to decarbonisation for CRE, guests discussed how they are reducing the carbon footprint of their property portfolios.

For professionals working with property owners and managers or marketing products to this sector, the conversation provided valuable insights into how seriously corporate clients regard the removal of carbon emissions from the buildings they occupy – whether owned or leased.

While legislation worldwide may be driving some of these changes, it’s crucial to note that the clients are at the forefront of making decisions about property refurbishments, including building services, electrification and adoption of on-site renewable energy.

Greg Bolino, JLL’s Head of Global Sustainability Strategies and Assets, opened the webinar with his view on the key areas companies should focus on when setting out a property decarbonisation strategy.

Asking the right questions “The first question companies need to ask is if we have a clear goal, do we have a clear plan? Companies come to JLL because they are nervous about these interim carbon reduction goals of 2025 and 2030 that are now close because they haven’t done a ground-up plan, an asset-by-asset analysis about how they will get there,” he said.

Bolino pointed to three questions corporate building owners and occupiers need to start asking (if they haven’t already).

1. Do we have the right location strategy?

Companies need to look at how and why they select the buildings they occupy. This could mean a complete re-set of how decisions are made or starting to include carbon pathways in decision-making and analysis. He noted: “It’s more than just lease negotiation tactics, although this might also include that and maybe more on how properties are selected, managed and measured. Some may even rethink lease vs own decisions.”

2. Do we have the right investment plan?

Corporations know that carbon commitments must be backed by capital for investment in refurbishment and for building their in-house capabilities to make the necessary changes in operating practice. Having the right people on board who can deliver on big carbon-reduction goals is crucial.

Bolino notes that JLL is already seeing clients facing challenging decisions: “We are working with a major university on their decarbonisation plan and strategy about some pretty tricky decisions about when they retire some carbon-based central plant assets. These things are almost at the end of their useful life, so these are decisions as they weigh the pathway of assets they just brought online.”

3. Do I need to rethink my relationship with landlords?

Bolino predicts that the heightened focus on carbon reduction from the built environment will lead to significant shifts in the landlord-tenant relationship. There are commitments to change being made on both sides, which at the very least, will need more openness and better communication than there has been to date.

Information for decarbonisation planning Michael Doty, Director – Originations at investment specialist Nuveen, highlighted that information is critical for companies setting out their building decarbonisation strategy.

He said: “Data collection is the challenge; this includes areas such as where fossil fuels are used on-site and procured electricity sources. Where a portfolio is leased to tenants, it can be difficult for landlords to collect good quality data.”

Doty noted that smart building technology is helping to alleviate this problem and enabling more consistent collection of better-quality data. “This helps to make decisions about investments for decarbonisation.”

Greg Bolino agreed with this, adding that decisions on equipment purchase go beyond the financial: “These days, we are looking at making investments and making decisions that go beyond calculating breakeven. For example, replacing a chiller was about costs, energy savings, and maintenance. Now, it’s about whether the existing equipment will fit in with the future of the building, electrification and decarbonisation.”

Adopting all-electric buildings and on-site renewables Global corporates such as Barclays have been on the decarbonisation pathway for some time. Myriam Coneim, Global Operational Sustainability and Governance Lead at Barclays says the bank is now looking beyond reducing carbon in its buildings.

“We want to prioritise projects that put green electricity back into the grid. The objective is to generate 10MW on-site by 2035. We want to move away from green tariffs to more direct engagement. ” she explained.

The panel noted that greater use of on-site renewables could lead to commercial buildings becoming part of national grid harmonisation strategies. The JLL panel was speaking internationally, but here in the UK, National Grid is already raising concerns about how it can ensure a continued smooth transition to electricity from offshore wind farms away from gas-fired power stations. In some parts of the world, smart building technology for automated demand response (ADR) is already in use and could be an important option for buildings in the UK.

Regulation and risk Globally, governments are using regulation and legislation to move the needle on national pathways to Net Zero. In the UK, for example, changes to Minimum Energy Efficiency Standards (MEES) are already focusing building owners on refurbishing for better energy efficiency.

Michael Doty highlighted the importance of looking to the future: “Looking at your buildings today means thinking about regulation at the national and local level in the future. For example, carbon caps for buildings add to future risks. You have to think about regulations that are in place today and what might be coming up in the next decade. Unremediated environmental risk could devalue your building assets.”

But it’s not just national legislation that poses these problems for developers and building owners. Doty also pointed out the growing impact of local regulation. This is being seen in the USA, but in the UK we also now have additional carbon-reduction requirements for developments in, for example, The London Plan.

Doty says this is understandable: “Cities strongly influence regulation and the direction of carbon reduction. That’s because 75% to 95% of a city’s carbon footprint is buildings and transport, so these are the areas they focus on at that level.”

Landlords and tenants – a changing dynamic One of the most important ideas raised by the JLL webinar was that decarbonising buildings would change the relationship between landlords and tenants. Carbon risk is such an important factor for corporate tenants that they are asking far more in-depth questions about the buildings they lease.

Greg Bolino noted: “Regulation is an important driver, and this will impact the market. But it’s important to remember that about 4,500 companies are looking down the list of buildings they lease and asking, should we stay? Do the buildings they occupy align with their ESG and decarbonisation goals?”

Coneim agreed that tenants could take the lead in conversations: “We are part of an ecosystem. We can influence the consultation process with our landlords.”

Barclays and JLL have been developing a Green Lease playbook to help tenants and landlords reach better agreements about how buildings can be decarbonised with benefits to both sides. It includes consideration of issues such as energy performance, electrification, and climate risk.

So, the relationship between landlords and tenants is set for an overhaul as a result of clients looking for sustainability in their built assets. This means that discussions around investment in low-carbon building solutions are likely to be wider and more open, with more transparency and willingness on both sides.

Conclusions The JLL webinar demonstrates how deeply the issues of decarbonisation and sustainability are embedded in the property sector. Large corporates are taking the lead, in many cases going ahead of legislation and making a global impact with their large property portfolios.

The construction industry must be ready to meet these new expectations and expect more focus on issues around embodied and operational carbon, electrification, and the delivery of on-site renewables. With landlords and tenants heading in the same direction, sustainable solutions can no longer be viewed as ‘nice to have’ but as the standard for all buildings.

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