As energy prices rise, inefficient buildings will become undesirable assets among potential investors, according to a JLL research report.
Commercial landlords in the U.S. face a $3 trillion bill for weaning their buildings off fossil fuel systems through retrofits, driven by new decarbonization regulations and a growing awareness of the “brown discount” on inefficient buildings.
As energy prices rise, inefficient buildings will become undesirable assets among potential investors, according to a JLL research report.
“We know the price of energy is going to increase,” said Jay Wilson, vice president of sustainability for JLL. “Corporations are anticipating those risks and starting to take action, saying, ‘Let’s invest in sustainability.’”
The JLL report estimates the average cost of decarbonization at 10 to 20 percent of assets under management on a portfolio-wide level.
Approximately 80 percent of office buildings in mature cities in North America and Europe will remain in use in 2050, suggesting that 3 percent of buildings will have to be retrofitted per year, JLL noted. But many landlords are hesitating to launch projects until there are clearer regulations.
The costs of retrofits will add to financial risks for office landlords in cities such as Boston, where vacancy rates have hit their highest level in over a decade.
But payoffs can be significant, with deep energy retrofits for office buildings delivering operational savings of 40 to 60 percent, according to JLL research. And 74 percent of commercial real estate executives surveyed by JLL in 2022 said they would pay a premium to lease a green building.
Green banks are seen as a way to fill the funding gap to make such retrofits a reality, and already operate in 21 U.S. jurisdictions. By combining public capital with private investment to fill funding gaps, they invested more than $7 billion in clean energy since 2011, including nearly $1.7 billion in 2020, according to a report by the American Green Bank Consortium and the Coalition for Green Capital.
