Transform Your Portfolio: Meet Tenant Demands with Low-Carbon Spaces

Whether your portfolio consists of multi-family residential, office, industrial, or mixed-use buildings, more often nowadays, sophisticated tenants are demanding the same thing: low-carbon spaces.

As companies strive towards reducing their carbon footprint to meet aggressive net-zero targets, it’s becoming crucial for their leased spaces to be in buildings that are energy-efficient, comfortable, healthy, and “low-carbon.” In fact, JLL released a study that assessed 20 major global markets and found that only 34% of future demand for low-carbon workspaces will be met.

So, while construction may be slowing down, there is still an incredibly high demand for existing buildings to perform with carbon in mind.

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“On average, three out of every four new lease requirements among the top 100 office occupiers in major U.S. markets will be tied to a carbon commitment between 2023 and 2030.”

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So, how do we define “low-carbon”?

There are two types of carbon we have to consider when we look at real estate:

1. Operational Carbon: the emissions generated through operating the building. Either Scope 1, generated at the building site (refrigerants or gas-fired equipment), or Scope 2, released as a result of fossil-fuel electricity delivered to the building.
2. Embodied Carbon: the emissions generated through the extraction, refining, manufacturing, transportation, and installation of building materials. Except for the comparatively small percentage that is released on-site during construction, most emissions are released off-site. (Embodied carbon is one component of Scope 3 emissions).

So, when a tenant inquires about the carbon footprint of a leasable space, it’s crucial to evaluate BOTH operational and embodied carbon.

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Focusing first on operational carbon, the following characteristics are essential in defining a “low-carbon” building:

1. Building Insulation and Envelope Efficiency: The building should have a high-performance thermal envelope, reducing heat loss or gain. This includes advanced insulation materials, high-quality glazing, and thermal bridging minimization. The overall U-value and R-value of the envelope components should meet or exceed current energy codes or green building standards.
2. Energy-Efficient Systems and Equipment: The building should incorporate high-efficiency HVAC systems, LED lighting, and energy-star-rated appliances. Key performance indicators include Seasonal Energy Efficiency Ratio (SEER) for cooling systems, Annual Fuel Utilization Efficiency (AFUE) for heating systems, and the overall Energy Use Intensity (EUI) of the building.
3. Electrification of Building Systems: The shift towards all-electric systems is crucial. This includes replacing gas-fired equipment with electric alternatives, such as heat pumps for heating and cooling. Electrification not only reduces dependency on fossil fuels but also improves indoor air quality by eliminating combustion-related pollutants.
4. On-site Renewable Energy Generation: Incorporating renewable energy sources like solar photovoltaics (PV) or wind turbines can significantly reduce a building’s net energy consumption. Assessing the building’s renewable energy capacity, its contribution to total energy needs, and the feasibility of achieving net-zero energy status are important.
5. Refrigerant Management: Proper selection and management of refrigerants are critical, given their high global warming potential (GWP). This includes using low-GWP refrigerants, implementing leak detection and repair programs, and considering refrigerant lifecycle management.
6. Bonus Considerations:
   • Air Quality Enhancement: Electrification of building systems contributes to improved indoor air quality by eliminating on-site combustion.
   • Energy Generation vs. Consumption Balance: Assess whether on-site renewable energy can offset the total electrical consumption of the building, potentially achieving net-zero status.

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We recommend starting with a comprehensive assessment across your entire portfolio to evaluate how your current assets align with these low-carbon operational goals. This analysis evaluates each building’s energy performance, insulation quality, HVAC system efficiency, and the extent of electrification. The goal is to identify gaps and opportunities for improvement in line with the outlined criteria.

Following this assessment, it’s crucial to develop a targeted retrofit strategy. This strategy should prioritize interventions that will transition your buildings towards low operational carbon status, focusing on enhancing energy efficiency, implementing renewable energy solutions, and upgrading to all-electric systems where feasible. Such a plan will not only ensure compliance with evolving environmental regulations but also enhance the long-term value and market competitiveness of your portfolio.

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When discussing low carbon spaces from an Embodied Carbon standpoint, there are several things you can do to help entice tenants:

1. Lifecycle Assessment (LCA) for Embodied Carbon: have a thorough LCA calculation completed to quantify the embodied carbon emissions of both the core and shell, as well as the interior fit-outs. Given the relatively recent focus on embodied carbon in real estate, many firms are initially focusing on quantifying current emissions from building materials to establish a baseline. As a developer or property manager, proactively offering to perform this analysis for tenants demonstrates a commitment to sustainability and assists them in achieving their environmental objectives.
2. Establishing and Achieving Reduction Targets: Communicate clear targets to tenants, such as “achieving 20% lower embodied carbon emissions compared to a standard baseline.” Achieving this requires close collaboration with a specialized consultancy. This firm would assist the design team in implementing low-carbon strategies and verifying emission reductions during construction. This practice not only enhances the sustainability profile of the space but also provides a quantifiable metric for tenants.
3. Commitment to Low-Carbon Materials: During construction and retrofitting, prioritize the use of materials with a lower carbon footprint. This involves selecting suppliers who are transparent about the environmental impact of their products, like a flooring vendor that discloses the carbon footprint of their materials. As the developer or property manager, you have significant influence in choosing materials that align with these sustainability goals, directly impacting the overall carbon footprint of the project.

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Now that you’ve made the space low-carbon, why not prove it?

Third-party green building certification programs can provide validation of the work you’ve put in to reduce the operational and/or embodied carbon emissions in your assets. There may be buildings in your portfolio that are eligible for an existing building certification (like LEED Operations + Maintenance) without needing any retrofits. But, if you’re putting in the commitment to lower the emissions during a building retrofit, it’s even easier to achieve a certification via LEED O+M, LEED Zero Carbon, Zero Energy, Energy Star, or ILFI Zero.

Existing building certifications can also help improve your GRESB score, or reporting for ESG frameworks.

Incorporating existing building certifications can significantly enhance your GRESB score, which is especially pertinent for entities engaged in ESG reporting. The GRESB framework, particularly within its Performance: Building Certifications section, allows property owners to detail their portfolio’s certified properties, segmented by property sub-type. This certification data is a valuable component of GRESB reporting, reflecting your commitment to sustainable building practices.

Beyond certification, other sustainability aspects are crucial for positioning your real estate as a prime choice for environmentally conscious tenants. This includes a focus on water efficiency, demonstrating reduced potable and irrigation water usage compared to standard baselines. Additionally, waste management is becoming a pivotal component of sustainability targets. Effective waste reduction strategies should be integrated both during construction and in ongoing building operations, aligning with the waste reduction goals of prospective tenants.

Equipping your buildings with air quality monitors and sharing this data with tenants addresses growing concerns about occupant health and wellness. These considerations are increasingly featured in ESG reports, under both environmental and social metrics. Positioning your property as not only low carbon but also as a promoter of health and wellness can give you yet another competitive edge. Certifications like the WELL or Fitwel can substantiate health and wellness claims, further boosting your GRESB score.

There are so many ways developers, landlords, and property management companies can increase their supply of “low-carbon” buildings and tenant spaces to support ESG goals and net-zero targets. Not only can you help your clients reach their goals, but your efforts will make your real estate more attractive and ultimately more valuable when compared to the competition.

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Next steps

To continue the discussion, contact us at ImprovingLife@BranchPattern.com or to begin a project, submit a request for proposal.

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