Climate Crisis

How do you decarbonize real estate? An expert explains

decarbonizing real estate

Future of real estate: Unsustainable buildings are becoming increasingly undesirable and tough to finance. Image: Photo by George Kedenburg III on Unsplash

Kalin Bracken
Lead, Real Estate Industry, World Economic Forum
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Climate Crisis

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  • Real estate drives approximately 40% of global carbon emissions, making it a key priority in the race to reach net zero.
  • Unsustainable buildings are facing increasing devaluation in the real estate sector.
  • The Forum spoke to Christian Ulbrich, Global CEO and President of JLL, about how to address the existing building stock and turn brown buildings green.

With COP27 underway, the UN’s net-zero deadline is no longer a distant ideal but a waving chequered flag on the horizon. Simultaneously, the recent pandemic and geopolitical tensions have exacerbated the climate exigency and energy crisis, further reworking the landscape for a welcome paradigm shift - not least in the real estate sector.

With the built environment driving close to 40% of global carbon emissions, green real estate is an unequivocal way to abate the climate crisis – and a key priority for future investments.

Unsustainable buildings are becoming increasingly undesirable and tough to finance, boosting the demand for new or retrofitted buildings. From large institutional investors to homeowners, there has been a marked shift of interest towards sustainable real estate and the opportunities it presents to capitalize on and future-proof assets.

We spoke to Christian Ulbrich, Global CEO and President at JLL, about how to address the existing building stock and turn brown buildings green.

Below are several key points on decarbonizing real estate that Ulbrich discusses. The transcript has been edited for clarity.

'Green leases - tenants can drive demand'

"Tenants have a vital part to play in real estate’s green transition. By focusing on green buildings and signing lease agreements with green buildings exclusively, tenants can drive the demand and subsequent development for sustainable real estate.

"Those who are already engaged in existing lease agreements can seize the opportunity to partner with their landlords and discuss ways of reducing the building’s energy consumption through new technology and retrofitting.

"In turn, this could offer tenants the unique prospect of a share in these investments and their value-added benefits. A survey by JLL found that green leases carried an average premium of 6%, proving that green real estate creates additional value for investors."

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From constructing new buildings to refitting the old, green real estate offers ample opportunities to not only accelerate sustainability, but bolster regeneration and resilience.

Christian Ulbrich, Global CEO and President at JLL

'Concerning brown discounts'

"At the same time, brown buildings – and their notoriously sizeable carbon footprints - face aggregated devaluation in the real estate sector and are now starting to trade at discounts.

"To avoid the 'brown discount', owners of large spaces are encouraged to invest in retrofitting old buildings to transform them into green buildings.

"With only 2% of existing buildings equipped to support the global net-zero goal in their current states, green refittings and transformations will become imperative to maintaining their value."

Future proofing assets

"JLL, in collaboration with the World Economic Forum, created 10 Green Building Principles to guide owners and investors through this transition and benchmark progress, positioning them to reduce their emissions by 50% by 2030 and to be net zero no later than 2050. By following these simple steps, from determining the carbon footprints of assets to setting green lease targets, companies and investors can create a personalised roadmap to net zero. We believe it easier to get to net zero in the built environment than it is for many companies to get to net zero in their core operations. Green buildings are relatively easy to develop. Every new development should be a green development.

"Additionally, the process of transitioning brown buildings to green buildings presents owners with the unique and prolific opportunity to address energy optimisation and explore on- and off-site renewables, attracting the growing market of green-conscious investors and, with it, the mounting pressure for others to follow suit.

"In the next five years, experts foresee industry leaders across all sectors moving ahead on the journey to decarbonization.

"Despite the ongoing global disruptions, which are expected to continue, real estate owners, developers, and occupiers should seize the opportunity to rebalance their real estate portfolios.

"From constructing new buildings to retrofitting the old, green real estate offers ample opportunities to not only accelerate sustainability, but bolster regeneration and resilience."

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