Key findings
The effects of carbon commitments will become evident in lease markets within the next 12 to 24 months, leading to a tipping point where investments in low-carbon buildings will begin to be profitable.
- Companies renting office space must ensure that their next lease allows them to make significant progress on their goals. However, they will encounter challenges as the availability of low carbon buildings struggles to keep up with the demand.
- Tenants are giving priority to buildings that are energy efficient, do not use onsite fossil fuels, and are powered by clean energy. In terms of construction projects, companies are starting to focus on designs with lower embodied carbon.
- This change is creating a sense of urgency and opportunity for investors who take advantage of this moment and can demonstrate measurable progress in a building's carbon performance.
The real estate industry is undergoing a significant transformation as sustainability becomes the main focus. In a report called “The Green Tipping Point” by JLL, key findings shed light on the imminent impact of sustainability in real estate. Could 2024 be the year when carbon commitments revolutionize the lease market on a large scale?
Carbon Commitments: A Tipping Point Is Approaching
According to JLL’s report, the effects of carbon commitments are expected to become apparent in lease markets within the next 12 to 24 months. This impending change will signal a tipping point where investments in low carbon buildings will begin to yield returns. Tenants are increasingly emphasizing the need for energy-efficient spaces powered by clean energy, reflecting a strategic necessity for corporate tenants. Investors who take advantage of this moment stand to benefit by demonstrating measurable progress in a building’s carbon performance.
Supply-Demand Dynamics: Striving to Keep Up
Despite the growing demand for sustainable office spaces, the supply of low carbon buildings is struggling to meet expectations. JLL’s research suggests that without increased levels of retrofitting, the disparity between demand and supply will widen significantly. By 2025, around 30% of the demand for low carbon space may go unmet, and this figure could exceed 70% by 2030. This underscores the urgent need for concentrated efforts to expedite the shift to sustainable real estate solutions.
Regional Perspectives: Varied Sustainability Landscapes
The report highlights the differing supply-demand dynamics across cities, influenced by local regulations and market preferences. In cities like London and Paris, momentum in regulations and progressive attitudes among stakeholders are driving the demand for low carbon space. In contrast, in cities like New York and Sydney, regulatory measures and market preferences for energy-efficient spaces are contributing to significant supply-demand disparities. Understanding these regional variations is crucial for navigating the evolving sustainability landscape.
Policy and Regulation: Drivers of Change
Efforts to decarbonize through policy interventions are gaining ground globally, compelling stakeholders to embrace sustainable practices. Governments and industry bodies are implementing mandatory ESG disclosure rules and building performance standards to promote transparency and accountability. These regulatory measures indicate a fundamental shift in real estate practices, encouraging stakeholders to adopt sustainability as the new standard.
Looking Ahead: Navigating Towards Net Zero Carbon
As we get closer to 2025, there is a crucial time coming up for the real estate industry. With less than seven years to cut emissions in half in line with the Paris Agreement, stakeholders need to speed up efforts towards net zero carbon goals. By 2025, 30% of the demand for environmentally friendly office space might not be fulfilled, showing the need for urgent action. Stakeholders need to make leasing decisions that support sustainability goals to make real progress towards a more eco-friendly future.
Conclusion: Embracing Sustainability as the New Norm
In conclusion, JLL’s report highlights how sustainability is changing the real estate industry. As stakeholders deal with the challenges of a quickly changing market, making sustainability the standard will be crucial for creating lasting value and strength in the built environment. By understanding regional differences, using policy measures, and committing to sustainability, stakeholders can set themselves up for success in a more eco-friendly future.
