Demand for sustainable buildings and tightening regulations drive business case for investment

Rhea-AI Summary

JLL research analyzes three key factors owners and occupiers must consider in decision-making. JLL - Jones Lang LaSalle Incorporated (JLL)

Positive

• Rising demand for sustainable buildings and increasing rental premiums for certified buildings across global office markets
• Growing evidence of environmental performance indicators becoming a priority for tenants in advanced European markets like London and Paris
• The business case for investing in decarbonizing and resilience across real estate portfolios is getting stronger

Negative

• Only 34% of future demand for low-carbon workspace will be met in the next several years across 20 major office markets
• New legislation on the horizon at international, national, and city levels may increase costs for investors and occupiers
• Mounting concerns about the damage caused by increasingly frequent and intense weather events

JLL research analyzes three key factors owners and occupiers must consider in decision-making  

CHICAGO, Nov. 28, 2023 /PRNewswire/ -- The current economic environment is creating challenges for investors and occupiers to make the case for investing in retrofitting and futureproofing their real estate. JLL's new The Commercial Case for Making Buildings More Sustainable report outlines three key factors that should be prioritized in occupiers' and owners' decision-making to create a more resilient and sustainable built environment.

Rising demand for sustainable buildings
In many global markets, rising corporate demand for buildings with sustainability credentials will have an impact on office market dynamics. Across 20 major office markets, including New York, Paris and Singapore, only 34% of future demand for low-carbon workspace will be met in the next several years. In other words, for every 3 square meters of demand, only 1 square meter is in the current pipeline.

The way occupiers think of sustainable buildings is also changing. Historically, green certifications have been the primary mark of sustainable buildings and tenants have been willing to pay the price. Transaction evidence from 2023 shows healthy rental premiums are still being achieved for certified buildings across a range of global office markets – but the industry is shifting.

Tenants will increasingly seek environmental performance indicators, such as energy intensity and electrification, on top of green credentials. JLL is already seeing evidence of this in advanced European markets, like London and Paris, where low-carbon prime office spaces are reaching historic rental highs this year, even with an overall slowdown in the sector.

"Despite the current headwinds from today's global economic environment, the business case for making investment into decarbonizing and resilience across real estate portfolios is getting even stronger," says Guy Grainger, Global Head of Sustainability Services and ESG. "Taking action now will minimize the business cost of ever more frequent climate events and maximize the commercial benefit from the incredibly low supply of net zero carbon buildings in the world."

More restrictive regulations
Although market forces driving investors and occupiers are moving faster than regulations right now, new legislation is on the horizon at an international, national and most stringently at a city level. Policies from 16 global cities covering carbon, energy, buildings circularity, biodiversity and resilience show a wide spectrum of commitment and action. For instance, 'Climate Progressive' cities such as New York, Paris and Amsterdam are rolling out an array of policy instructions covering new and existing commercial and real estate. New York has introduced several pioneering local laws, while Paris is taking the lead in considering embodied carbon and Singapore has set out a holistic approach to greening its buildings.

Mounting costs from physical climate risks
The damage caused by increasingly frequent and intense weather events is a mounting concern for real estate. Part of building a strong business case will involve understanding the risks of disruption to business operations and potential damage to buildings. One of the biggest challenges in assessing climate risk is the wide range of approaches and the lack of consensus on standardization. Some providers are thinking about value at risk in terms of insured value, others are looking at the change in asset value or replacement cost.

On Dec. 5, 2023, at 10am CT/11am ET/4pm GMT, JLL will host a webinar as part of COP28 to discuss findings from the report with an external panel of experts from ULI, Hines and Standard Chartered. To register, click the link here.

About JLL
For over 200 years, JLL (NYSE: JLL), a leading global commercial real estate and investment management company, has helped clients buy, build, occupy, manage and invest in a variety of commercial, industrial, hotel, residential and retail properties. A Fortune 500® company with annual revenue of $20.9 billion and operations in over 80 countries around the world, our more than 105,000 employees bring the power of a global platform combined with local expertise. Driven by our purpose to shape the future of real estate for a better world, we help our clients, people and communities SEE A BRIGHTER WAY^SM. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.

Contact: Allison Heraty
Phone: +1 312 228 3128
Email: allison.heraty@jll.com

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/demand-for-sustainable-buildings-and-tightening-regulations-drive-business-case-for-investment-301999392.html

SOURCE JLL-IR

FAQ

What factors does JLL's report analyze for owners and occupiers in decision-making?

The report outlines three key factors that should be prioritized in occupiers' and owners' decision-making to create a more resilient and sustainable built environment.

What is the impact of rising corporate demand for buildings with sustainability credentials on office market dynamics?

Only 34% of future demand for low-carbon workspace will be met in the next several years across 20 major office markets.

What are tenants increasingly seeking in sustainable buildings?

Tenants will increasingly seek environmental performance indicators, such as energy intensity and electrification, on top of green credentials.

What are some examples of the more restrictive regulations mentioned in the report?

Policies from 16 global cities covering carbon, energy, buildings circularity, biodiversity, and resilience show a wide spectrum of commitment and action.

What is one of the biggest challenges in assessing climate risk mentioned in the report?

The wide range of approaches and the lack of consensus on standardization.