As the push for environmental responsibility grows across the U.S., commercial property owners are finding themselves at a crossroad. Tightening regulations are no longer just a distant concern—they’re rapidly becoming a force in the real estate industry. To stay ahead, property owners and operators must not only comply with these new standards but also embrace sustainability as a cornerstone of their business strategy.
Sustainability is a powerful tool for reducing carbon footprints, slashing operational costs, and aligning with the growing demand for Environmental, Social, and Governance (ESG) accountability. By adopting green practices and technologies, commercial properties can transform these challenges into opportunities, enhancing both their environmental impact and bottom line.
Yet, the journey to sustainability is filled with challenges, particularly when it comes to managing Scope 3 emissions—those elusive, indirect emissions that often account for the largest share of a property’s carbon footprint.
At the same time, the increasing threats of climate change, from rising sea levels to more frequent extreme weather events, are putting real estate portfolios at unprecedented risk. In this rapidly evolving landscape, staying informed about the latest sustainability trends isn’t just smart—it’s essential for securing the future of commercial properties.
In this article, we explore six key sustainability trends impacting commercial properties. We highlight how these trends are reshaping the commercial real estate landscape, emphasizing the importance of staying informed and proactive in adopting these practices.
UPDATED AT: August 23, 2024
Sustainability is becoming a legal obligation for commercial property owners across the U.S. As more cities and states jump on the ESG (Environmental, Social, and Governance) bandwagon, the pressure to measure and disclose environmental impacts is increasing. To date, 49 cities and 6 states have enacted laws requiring commercial real estate properties to benchmark and publicly report their ESG performance, setting a new standard for transparency and accountability in the industry.
Leading the charge is New York City with Local Law 97, which mandates stringent energy efficiency and carbon emission limits for large buildings. Failure to comply could result in hefty fines, pushing property owners to invest in energy-saving technologies and strategies to stay on the right side of the law.
On a national level, the U.S. Securities and Exchange Commission (SEC) is also stepping up, with proposed climate disclosure rules that could soon require public companies to report on their climate-related risks and greenhouse gas emissions in their annual filings.
For commercial property owners, this is a clear signal: taking responsibility for your portfolio’s environmental impact isn’t just good practice—it’s about to become mandatory. As these regulations take hold, those who proactively embrace robust ESG strategies will not only avoid penalties but also position themselves as leaders in the evolving real estate landscape.
Building Performance Standards (BPS) are quickly becoming a cornerstone of energy regulation in the U.S., with about 13 cities currently enforcing these standards and many more planning to implement them by 2026. These regulations are designed to drive buildings toward greater energy efficiency, reducing carbon emissions and energy use on a significant scale.
Washington, D.C.'s Building Energy Performance Standards (BEPS) is a leading example of this initiative. BEPS requires large buildings to meet specific energy efficiency targets, compelling property owners to take decisive action in reducing their energy consumption. The results can be dramatic: a 273,000-square-foot office building in Washington, D.C. cut its energy use by 29% after adopting these measures, showcasing the effectiveness of BEPS in driving real change.
For property owners, complying with BPS requires strategic planning. One of the first steps is conducting thorough energy audits to identify inefficiencies within the building. By pinpointing where energy is being wasted, owners can make targeted improvements that lead to significant reductions in consumption.
Another key strategy is adjusting equipment schedules and conducting operational reviews. Fine-tuning the timing and operation of systems like HVAC can optimize energy use, often with minimal upfront investment.
Additionally, investing in energy-efficient retrofits—such as upgrading lighting, enhancing insulation, or installing high-efficiency HVAC systems—can further ensure that buildings meet BPS requirements while improving overall building performance.
Source: Natural Resources Canada
As more cities and states adopt BPS, property owners who proactively engage with these standards will not only ensure compliance but also enhance their buildings' sustainability and long-term value.
Green leases are redefining the relationship between tenants and landlords, turning sustainability into a shared goal. These agreements go beyond traditional leases by incorporating specific clauses that promote energy efficiency, water conservation, and waste reduction. The beauty of green leases lies in their ability to align the interests of both parties, creating a collaborative partnership where everyone benefits from a more sustainable and cost-effective approach to building management.
The rise of green leasing practices hasn’t gone unnoticed. Industry recognition is growing, with programs like the U.S. Department of Energy’s Green Lease Leaders shining a spotlight on those leading the charge. In their most recent awards, 65 landlords and tenants were recognized for their efforts, representing a staggering 2.9 billion square feet of commercial space.
According to a study by the Institute for Market Transformation (IMT), U.S. office buildings could slash their energy consumption by 11% to 22% simply by adopting green leasing practices. These reductions are not just good for the planet—they’re good for the bottom line. The IMT study estimates that if green leases were widely adopted, U.S. office buildings could save up to $3.3 billion annually.
This potential for massive energy savings and financial returns makes green leases a game-changer. By encouraging energy-efficient practices and fostering a spirit of cooperation between landlords and tenants, green leases are paving the way for a more sustainable and profitable future in commercial real estate.
Scope 3 emissions present one of the most significant challenges in a company’s journey toward sustainability. These are the indirect emissions that occur throughout a company’s value chain—from suppliers and logistics to the use of sold products—and they can account for up to 90% of a company’s total emissions. Managing and reducing these emissions is crucial, yet incredibly complex, given their diffuse and often difficult-to-track nature.
To tackle Scope 3 emissions, companies need to adopt a strategic approach. Setting internal reduction targets is a first step, establishing clear goals that align with broader sustainability objectives. However, addressing Scope 3 emissions cannot be done in isolation. It requires collaboration across the entire supply chain, encouraging suppliers and partners to set and meet their own emissions goals.
Implementing sustainable procurement policies is another key strategy. By prioritizing suppliers with strong environmental practices and making sustainable choices in purchasing decisions, companies can significantly reduce their Scope 3 emissions. This not only helps in cutting down emissions but also supports the broader market shift toward greener practices.
Reporting to frameworks like the Carbon Disclosure Project (CDP) and participating in initiatives such as the Science-Based Targets Initiative (SBTi) are also essential for companies aiming to align with global emission reduction goals.
These frameworks provide structure and accountability, helping companies measure their progress and stay on track with their sustainability commitments.
Source: National Grid Group
As climate change continues to reshape the landscape of commercial real estate, understanding and mitigating climate risk is becoming a top priority for property owners.
Climate risks can be broadly categorized into two types: physical and transition risks. Physical risks involve the tangible impacts of climate change, such as severe weather events—think floods, wildfires, hurricanes, and extreme heat—that can directly damage properties and disrupt operations. Transition risks, on the other hand, arise from the shift towards a low-carbon economy. These include new regulations, evolving market conditions, and changing public expectations, all of which can affect property values and investment returns.
The financial implications of climate risk are already being felt. Insurance costs for properties exposed to climate risks are soaring, with annual increases often exceeding 17% in high-risk areas. Nationwide, commercial property insurance premiums have been climbing at a rate of 7.6% annually since 2017. Beyond insurance, properties may face devaluation, higher operational costs, and the potential risk of stranded assets as regulations tighten and market conditions shift.
To navigate these challenges effectively, property owners should utilize climate risk assessments. These assessments provide a detailed analysis of both physical and transition risks, allowing owners to identify vulnerabilities and plan appropriate mitigation strategies.
Investing in climate-resilient infrastructure, adapting investment strategies, and securing adequate insurance coverage are key steps in protecting properties against these risks.
In the quest for greater sustainability in commercial properties, technology is emerging as a powerful ally.
AI and automation are at the forefront of this transformation. Building Management Systems (BMS) equipped with digital control are a prime example. These systems allow for real-time monitoring and management of building operations, adjusting lighting, heating, cooling, and other systems based on occupancy patterns and environmental conditions.
This dynamic approach to energy management can lead to significant reductions in energy use and operational costs. According to a CEREMA study, digitizing the BMS by connecting it to a platform such as the solution developed by Energisme, allows you to fully exploit your BMS and increase the potential savings, which can go up to 53%, compared to 10 to 20% without connection.
Looking ahead, future technological advancements promise even greater enhancements to building sustainability. Smart grids, which integrate digital technology into the electricity grid, could provide more efficient energy distribution and better integration of renewable energy sources. Internet of Things (IoT) devices will further revolutionize building management by offering more granular data on energy usage, equipment performance, and environmental conditions.
Incorporating these advanced technologies not only helps buildings become more energy-efficient but also positions them as leaders in the drive toward a sustainable future.
In summary, by embracing these trends, property owners and managers can ensure compliance with emerging regulations, reduce operational costs, and strengthen their portfolios against climate risks. Adopting sustainable practices not only aligns with global environmental goals but also enhances the long-term value and performance of commercial properties.