Dive Brief:

• Pressures for commercial real estate owners to cut emissions coming from investors, tenants and regulatory requirements will intensify in 2024, pushing it from the sidelines to the forefront of business strategy, according to a report from Cortex Sustainability Intelligence released Dec. 12.
• Difficulties persist, however, in assessing and reporting on decarbonization progress due to a lack of uniform terminology and standardized methodologies, the commercial real estate sustainability trends report states. 
• Leveraging technology such as building management systems to reduce carbon emissions and energy consumption can boost asset value in 2024, the report said. 

Dive Insight:

As the urgency to decarbonize buildings mounts, tenants are willing to put “their money where their mouth is” to support sustainable practices, the report states. However, traditional lease structures present the “split incentive” problem, Cortex said in the report.

Building owners fund energy efficient upgrades while tenants enjoy the ensuing cost savings. “This misalignment of incentives has been a stumbling block on the path to comprehensive sustainability efforts in CRE,” the report states. Cortex points to green leases, data sharing agreements, tenant fit-outs and behavioral change initiatives as strategies that can foster more collaboration between property owners and tenants. 

“It's not just about embracing ESG; it's about finding a balance that ensures sustainability without compromising financial prudence in the face of what promises to be a challenging year,”  Bryan Bennett, CEO of Cortex Sustainability Intelligence, said in a Dec. 12 news release.

Pressure from investors

Investors are increasingly demanding transparency in current and anticipated sustainability performance, the report notes. Fifty-one percent of corporate boards exercise significant influence on sustainability investments, while 28% consider sustainability metrics on par with financial metrics, it said. That finding demonstrates a growing integration of financial performance with responsible environmental and social stewardship, it said, leading to the integration of sustainability into operational decisions, Cortex said.

But against a backdrop of rising interest rates and uncertainty around office utilization in the future, Bennett said there still is not much capital investment occurring from commercial real estate owners. “We see commercial real estate companies wanting to address growing carbon requirements that require very little capital in a fast payback period, which leads them to leverage technologies … that enable them to operate equipment in a way that's more precise,” Bennett told Facilities Dive in an interview.  

Regulatory pressures

States and cities are focusing on building performance standards aimed at cutting greenhouse gas emissions and spurring energy efficiency upgrades in existing buildings. However, retrofitting whole commercial buildings will take more than 50 years to complete at the current pace — well short of what is needed to meet net-zero emissions goals by 2050, the report said. 

As BPS and benchmarking regulations take effect, the financial costs of noncompliance could be significant, but predicting penalties accurately can be difficult while dealing with disparate local rules, the report states. Complying creates a “huge data requirement,” but the lack of a common language and standardized measurement approach is a concern.  

“We talk to CEOs and heads of ESG at large real estate businesses. They’re talking to their investors about how to measure, and there’s no consistency,” Bennett said. “It’s chaotic for the facilities team and building engineers to figure out how to balance the priorities of managing tenant comfort, cost and, now, ESG, without a lot of clarity around how those ESG improvements will be measured,” Bennett said.