Like many other real estate investment trusts (REITs) that own a large number of office buildings, Vornado Realty Trust (NYSE: VNO) took a beating during the pandemic. But that hasn't stopped it from pursuing an initiative it's been committed to for years: becoming carbon neutral.
To achieve carbon neutrality, a building must only emit the same amount of carbon dioxide into the atmosphere that it offsets by other energy savings. Installing solar panels, for example, is one step buildings can take to become carbon-neutral.
Vornado is currently on a path to make all of its buildings carbon-neutral by 2030. And there's a good chance it won't be the only REIT to work toward that goal in the coming years.
A shift to eco-friendliness
There's been a movement in real estate investing toward being environmentally conscious, and so it's not surprising Vornado is committing to some lofty goals. Of course, the fact that Vornado has a large concentration of properties in New York and California, both of which have initiatives in place to achieve eco-conscious goals, could be fueling its push toward carbon neutrality, but in all fairness, Vornado has been steadily working to reduce its energy consumption for years.
Between 2009 and 2019, Vornado slashed its energy usage by 24%. It also saw a 20% reduction in emissions between 2019 and 2020, though that was mostly due to the fact that its office buildings largely sat vacant for the bulk of last year as the coronavirus pandemic forced most of its tenants into remote work. As more tenants return to the office in 2021, Vornado does expect emissions to increase.
Still, it's on a pretty solid path to keep improving on the earth-friendliness front. Vornado has a plan to reduce its energy consumption to 50% below 2009 levels by 2030. It also intends to
convert all of its buildings' steam, gas, and oil-sourced consumption to electricity, which is a cleaner form of energy. Plus, it intends to get its electricity supply from 100% renewable sources.
Now Vornado acknowledges that there are outlays in retrofitting properties to consume less energy, but at the end of the day, there can be a world of savings involved. Also, Vornado believes that carbon-neutral buildings could be more competitive in the long term by drawing in tenants. Plus, improved air quality could lead to lower HVAC and maintenance costs.
All told, Vornado has much to be gained by being a leader in energy efficiency, and as its plans come closer to fruition, there's a strong chance more REITs will adopt a similar approach. Not only can going green help REITs lower their operating costs, but reducing their carbon footprint could, frankly, be a huge PR play. This may be an especially strategic move for office REITs, which could struggle with sluggish leasing demand as companies continue to shed office space in the wake of the pandemic and uphold the remote work setup.
Another thing to consider is that in time, building owners may not get a choice as to whether they want to become more eco-friendly or not. If states continue to impose mandates on reduced emissions, buildings will have to comply, and so it pays for property owners to get on board with the idea of going green, even if it's not a current priority.