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Commercial Real Estate’s United Drive Towards Building Decarbonization

Even on a small scale, the notion of eradicating anything in its entirety is nothing short of overwhelming. Removing all the leaves from the gutters. Getting rid of every unwanted email in an inbox. Finishing every book on your “to read” list (ok, that might just be me, but you get the idea). All of these are big tasks but doable, even on your own. Now, imagine eliminating all carbon emissions from our buildings. The task is so large that it can seem insurmountable. Nevertheless, the world has committed to decarbonization, so we will forge ahead with this Sisyphean task. 

Every industry is being pushed to decarbonize, but few have as much pressure as the property industry. Estimates for what it would take to upgrade our buildings to be carbon-free sit at around $18 trillion, or approximately 20 percent of the entire world’s GDP. Of course, building owners will carry the monetary burden, but there’s so much more to decarbonization than shelling out the big bucks for upgrades. There must be. Building owners can’t be solely responsible for orchestrating such a massive operation.

Building owners are accountable for financing decarbonization efforts and are in control of making decisions to make buildings more efficient. But property owners can’t be expected to do it alone. Buildings are just the vessel for our daily activities, so they rely on the people using them to change their behavior and the utilities that power them to invest in renewables. Plus, the path to carbonization isn’t always straightforward. Even sustainability advocates disagree on the best way to eliminate carbon from our economies. For complete decarbonization to happen, we can’t just sit idly by and point our fingers at all of the ways that buildings can reduce their carbon footprint. Instead, it will take a concerted effort from the investment world, regulators, and the general public.

The helping hand

Commercial real estate services firms could, or perhaps should, be a requisite part of decarbonizing the world’s properties. Companies like JLL, CBRE, Cushman & Wakefield, Newmark, Marcus & Millichap, Colliers, and a host of others have completed extensive research on decarbonization best practices and offer any number of reports, playbooks, and executive guidance to help building owners determine the most effective path to carbon elimination, which entails energy-efficiency measures, electrification, and renewable energy.

The property owners bring the financing and decision-making to the table, and the services firms provide direction, but what is money and guidance without someone to execute the plan? That someone is the property manager, the boots on the ground. Property managers are essential in the decarbonization process, as they know the buildings from the inside out and are responsible for the property’s day-to-day operations. Once the ownership opts to, say, install a solar panel to reduce reliance on carbon-emitting fuel, property management does the grunt work, so to speak, selecting the right product, choosing the right installation company, negotiating cost, and monitoring progress. Building owners and managers are the carbonization tag team, funding and facilitating decarbonization investments. Still, they can’t shoulder the burden on their own.

The fact is that many property managers need to be equipped to oversee a change of this magnitude. They are often understaffed and need to be sufficiently trained on the ever-expanding tools being pitched to them as ways to reduce carbon emissions. For property managers to be able to handle the increase in complexity in the already complex building systems they oversee, there will have to be more education, better recruiting, and less marketing noise. No one says, “When I grow up, I want to manage a building.” But hopefully, that will change. Not only are building managers some of the most influential people in the lives of the occupants of any building, but they are also the front line in our war against carbon.

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We don’t just work here

When it comes to being a landlord, there was a time when it was as simple as signing the lease and handing over the keys. But now, there is so much more to the tenant-landlord relationship than that. To reduce our carbon, we will need even more collaboration. Tenants today need to be active participants in sustainability efforts. After all, they are the ones using the energy. Decarbonizing a building is nearly impossible if they do not find ways to reduce their consumption. 

Luckily, many tenants are motivated to do so. Companies leasing office space often have their own sustainability mandates and are keen to show their environmental sustainability to attract top talent. People who live in buildings also want to see their electricity bills go down, taking their carbon footprint with it. Occupants must educate themselves on how to reduce their carbon intake. Landlords can help them by providing valuable feedback and actionable suggestions, but at the end of the day, the tenants need to act on this information.

With triple net leases for example, property owners are less incentivized to make building improvements if the tenants pay for utilities themselves. But there are ways around this lack of alignment, explained Max Bremner, Energy Project Manager with Cushman & Wakefield. “There are some off-balance-sheet models that allow passing the costs of building upgrades onto the tenants,” Bremner said. “Converting a mechanical upgrade from a capital expenditure to an operating expense, and reducing energy consumption improves the building’s net operating income, so both the owner and the tenant benefit.”

Fully eliminating carbon is made possible by simple practices like turning off lights when you leave a room or powering down computers when not in use. Whether it is in the office or in the privacy of our own homes, the culture we create around sustainability will be the thing that drives us to make these changes to our daily lives. We can also benefit from more transparency about how we are doing. Currently, we only think about our energy use when we get our monthly utility bills. Buildings can give us much more insight into the carbon impact of our decisions. More real-time monitoring and reporting will help people understand what actions they can take and how their building performs compared to others. 

At the very least we need to know how energy efficient our buildings are. New York City is a leader in this regard. Commercial property owners in Gotham must display the city-calculated energy efficiency grade, exposing a building’s ranking in the bid to reduce greenhouse-gas emissions.

One of the reasons that it can be hard to understand exactly how our actions impact our carbon footprint is because reducing energy use isn’t always the same as reducing carbon emissions. The complicated electrical grids we have built don’t produce the same amount of carbon throughout the day. Reducing energy use when renewable energy is abundant does not have the same effect as when coal and gas and coal powered plants are used to fulfill our energy needs. Buildings are finding ways to connect to local utilities so they can know exactly how green the energy they are consuming is. But now we must get that information to the people inside the building—and hope they will act on it. 

The outsiders

Owners, managers, tenants, and employees have a stake in a building’s carbon emissions status. Vendors don’t. Vendors aren’t obligated to play a part in a property’s decarbonization, but maybe they should be. A CBRE report notes that property owners increasingly require vendors to provide sustainable products and services. It makes sense. If you’re in the process of decarbonizing your property, it would hardly be prudent to incorporate materials or pay for services that are high on the carbon emissions scale. There is very little in our lives that doesn’t have a carbon footprint. Take a piece of furniture. Consider the timber and metal that comprise a desk and even the box in which the desk is packaged. If building owners, managers, and tenants are vigilant about holding vendors to certain standards, then they will lessen outside influences on a property’s emissions.

Financial institutions are another vital in the decarbonization of real estate as well. They can offer financing that allows borrowers to use funds exclusively for sustainability-related projects. Green loans are particularly important to the decarbonization process as owners of smaller properties often have limited budgets for sustainable upgrades. Every building counts on the road to emissions reduction and some property owners simply won’t be able to make the necessary upgrades without such options as green loans.

Utilities are also a huge piece of the energy landscape, and they don’t always act in ways that help buildings reach their decarbonization goals. Upgrading to renewable energy is expensive, making it politically unpopular in some places. But without green energy infrastructure, there is no way we will be able to rid ourselves of our carbon addiction. There is also the issue of supporting on-site energy generation. Investments like solar panel installation on buildings are critical for reducing carbon emissions but utility companies often disincentivize them since the energy produced on-site doesn’t help pay for the upkeep of the grid. More pressure needs to be put on utilities across the country to invest in renewables and find new pricing structures that will make it easier for buildings to invest in green energy solutions.  

And finally, there’s government, from the local to the federal level. Various government agencies and organizations offer programs to help companies achieve their decarbonization goals. They also set the rules that compel property owners to comply with regulations that keep the ball moving toward achieving sustainable goals. Regulation is a critical part of motivating buildings to decarbonize, but energy reduction laws that are prohibitively hard or unnecessarily punitive will only get pushback from the property industry. Politicians will need to find ways to work with building owners and operators to help them decarbonize and not think that they can just fine carbon out of existence. 

A fact that gets thrown around repeatedly is that the built environment is responsible for 40 percent of global carbon emissions and 25 percent of overall greenhouse-gas emissions. It is true that buildings are a huge part of our global carbon appetite, but unlike a lot of other contributors, buildings are a requirement of our lives. Decarbonizing our buildings requires decarbonizing our lives, and to do so we will need all hands on deck. Building owners and managers are the obvious suspects, but occupants, governments, and outside entities must come together if we want to make the dearm of decarbonization a reality.

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