Retrofitting of real estate properties a future's must
Retrofitting of real estate properties a future's must
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Retrofitting of real estate properties a future's must

Rising energy costs will hasten the move towards efficient buildings
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RE+D magazine
08.12.2022

We estimate that across the world’s most developed cities at least 90% of office buildings are over 10 years old. Most of these assets would not meet today’s energy efficiency standards for new builds and very few have firm plans in place to prepare for even more stringent regulations on the horizon as governments pivot efforts to decarbonize existing buildings.

According to JLL's "Retrofitting Buildings to be Future-Fit" report, 80% of office buildings which exist today will still be in-use in 2050.

To avoid ‘brown discounts’ and penalties, real estate owners need to make their buildings future-fit through a program of net zero carbon (NZC) interventions as part of broader asset repositioning strategies.

Globally, the real estate industry is facing an enormous challenge: retrofitting our buildings to reduce global carbon emissions. It is time for those leading the industry, along with governments, to drive the asset transformation needed.

JLL estimates that US$3 trillion will be required to meet these retrofitting targets. Addressing the knowledge gap, upskilling the workforce and scaling technology will be critical. The transition to a low carbon economy comes with a hefty price tag but as recently declared by the IMF,1 further delaying climate policies will hurt economic growth; the time to act is now. 

Decarbonizing existing assets is critical to avoiding the ‘brown discount’ While economic headwinds, escalating costs and labor shortages are making it harder to unlock retrofitting opportunities over the short term, progressive owners are doubling down on net zero carbon (NZC) interventions in the knowledge that liquidity, pricing and debt are increasingly influenced by a building’s emissions performance. Rising energy costs will hasten the move towards efficient buildings and reinforce emerging value trends, with the financial risks of inaction already becoming apparent. Acute shortages of NZC buildings will benefit early adopters of retrofitting by boosting rent, reducing financial risk, improving access to capital at favorable rates, and making it easier to attract and retain tenants.

We must triple the pace of NZC retrofitting – collaboration at all levels will be key At current rates, decarbonization will not be achieved until the end of the century, which will be too late to align with the Paris Climate Agreement. In the Global North, retrofitting rates need to triple from barely 1% today to at least 3% of stock per year. An estimated US$3 trillion will be required to meet these targets. Addressing the knowledge gap, upskilling the workforce and scaling technology will be critical to accelerating the pace of retrofitting. 

NZC interventions need to be strategically planned and pursued at scale The actions to decarbonize are clear – maximizing operational efficiencies, the electrification of heat, incorporating on-site renewable energy and sourcing off-site local renewable energy, with offsetting as a last resort. Retrofitting is complex, and owners need to take a holistic, long-term strategic view for it to be successful. 

Relationships between owner and occupier will need to deepen – requiring new business models Both landlords and tenants stand to gain significant value by collaborating to form new partnerships, create new business models and identify co-investment approaches. Tenant usage is a major factor in delivering NZC outcomes. This will disrupt the economics of existing leases. 

Retrofitting must also go beyond carbon to meet wider sustainability goals The real estate industry must rebalance its efforts from new construction to retrofitting and embrace whole life carbon. NZC retrofits are both more viable and responsible when considered in tandem with broader asset repositioning that responds to changing workplace dynamics, health and wellbeing needs, social impact, biodiversity, and climate resilience.