Environmental initiatives are all the rage right now. With the current administration's efforts to reduce our country's carbon footprint and amp up clean energy, it's no surprise the sustainability initiatives are transferring over to real estate. Considering real estate contributes around 40% of global greenhouse gas emissions and 36% of global energy use according to a report produced by the UN, the real estate industry has a lot of room for improvement.
Initiatives like LEED certification and energy efficient building materials or appliances are a great first step, but to make a lasting impact, investors have to take on bigger goals of decarbonization within the development and operation of a real estate portfolio.
From demolition, engineering, renovation, development, and reporting, there isn't an integrated approach to tracking or achieving sustainable initiatives across sectors, developers, and communities. The industry is very much disjointed, which is creating a unique opportunity for those willing to tackle sustainable building initiatives.
Sustainable building designs are heating up
Raw materials and construction account for 30% of carbon emissions within the real estate industry, which is used in the development or redevelopment of real property. Buildings alone use 40% of global energy, making them an obvious starting point for sustainability. This can include:
Data centers have been an exemplary sector in the CRE industry when it comes to sustainable buildings. Companies like Equinix have paved a new path, using innovative building designs like fuel cell technology, Smardt chillers, deep lake water cooling, and aquifer thermal energy storage, which heats and cools the data center more efficiently from natural energy sources. The company recently shared it will be carbon neutral by 2030.
This is just a starting point. Very little research and development (R&D) has been done in the real estate climate technology sector, meaning there is still a huge opportunity to create new materials and systems to minimize environmental impact.
Sustainable buildings scream 'GREEN'
A report by the World Economic Forum found that in 2016, 40%-48% of newly built commercial properties were considered green, compared to only 2% in 2005. The industry is changing. Lower operating costs are making it more feasible for companies to address environmental impacts and make change to their environment, social, and governance (ESG) policies, but also increased consumer demand for environmentally friendly properties has incentivized investment firms to be more aggressive and transparent about their impacts on the environment. It pays to be green.
Energy ratings have proven to increase a property's value when compared to similar, non- energy-related properties. Enhancing a building's sustainability ratings is a good move financially. Not only does it lower operating costs for you or your tenants, but it also adds value to your property. But investors need to start thinking bigger, getting more creative with the solutions they are seeking to address these issues.
I imagine as the current administration defines more plans to reach its big environmental goals, there could be new programs created to help offset costs for making the sustainable move and even federal funds backing real estate climate technology R&D. For now, investors should continue to educate themselves on alternative options for sustainable buildings and put these efforts at the forefront of their actions.