Key Takeaways
- Existing buildings must be retrofitted at five times the current rate to meet decarbonization goals.
- 70% of potentially obsolete buildings are located in cities with strong sustainability initiatives.
- Retrofitting presents opportunities for value creation in commercial real estate, driven by multiple factors.
Current Challenges and Opportunities in Building Retrofitting
According to a recent report by JLL, aging building stock is failing to meet global demand standards, necessitating a retrofit increase from the current 2.4% to 13.2% annually to achieve commercial real estate’s decarbonization targets. Despite the challenges, cities with ambitious sustainability goals, like New York and Boston, are leading efforts to retrofit existing buildings.
Paulina Torres, JLL’s global research director, emphasizes that local jurisdictions play a significant role in the push for sustainable buildings. Many cities are aiming for net-zero emissions within their boundaries, integrating building retrofitting into broader environmental strategies. JLL’s analysis of 30 global markets revealed that 1.5 billion square feet of potentially obsolete buildings are situated in areas with strong sustainability potential, signifying a substantial market opportunity for investors.
The report identifies five key factors driving developers to transform outdated buildings into high-performing, energy-efficient structures:
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Investment Momentum: Capital is increasingly directed towards building retrofits in urban areas where construction costs are high and existing infrastructure is established.
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Low-Carbon Lease Demand: Companies are actively searching for buildings that align with their emissions reduction targets, increasing the demand for retrofitted spaces.
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Energy Market Dynamics: In cities like Chicago and Los Angeles, electricity costs can constitute up to 26% of rental value, making energy efficiency upgrades a high-priority area for reducing operating expenses.
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Physical Risk Adaptation: More frequent severe weather events pose financial risks, prompting building owners to adapt and improve their properties.
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Regulation: While Europe leads in sustainable building policies, U.S. jurisdictions are implementing stringent building performance standards despite federal rollbacks on climate policy. Around 15 U.S. jurisdictions, accounting for 25% of the nation’s building stock, have mandates requiring owners to monitor and reduce energy use and emissions.
Torres highlights that retrofitting can be viewed not merely as a regulation-driven responsibility but as an opportunity for value creation in commercial real estate. Instead of perceiving sustainability as a cost, it can be an avenue for building owners to leverage strategic improvements for their properties. The convergence of various drivers indicates an evolving landscape where retrofitting is becoming essential to future commercial real estate success.
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