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CRE Investors and Tenants Want Sustainability. Making it Happen is Tough

The built environment accounts for approximately 42% of annual global CO2 emissions. As a result, the commercial real estate sector is focusing on ways to reduce that greenhouse gas output. But “The Sustainability Imperative: The Future of Real Estate Investment” revealed a dichotomy that is taking place in reducing environmental impacts. While CRE occupiers and investors understand the importance of sustainability, getting from here to there is proving to be a challenge. The report, commissioned by the Bryan, Cave, Leighton, Paiser law firm, polled more than 700 real estate investors and corporate tenants throughout the United States, Europe, the Middle East and Asia for responses. Investors said that by 2030, more than half of their property portfolios would be CRE assets with unknown, poor or average sustainability performance. Furthermore, 74% of the investors said “a major cultural change” will be necessary for their firm to place sustainable buildings as an essential part of their investment strategies. On the occupier side, 56% of organizations have agreed to sustainability screening criteria applied to all commercial property rental decisions. In comparison, 48% currently have sustainability as a standing item on their leadership meeting agendas. Meanwhile, 43% of companies have leadership support in prioritizing sustainability, while 38% acknowledged having specific, measurable sustainability goals. Overall, sustainability factors rank fourth for investors when making decisions and the third most crucial factor for occupiers making rental decisions. What is causing this gap between knowledge and action? The research identified three barriers to real estate investment:

  • A lack of consensus, like specific definitions, certification and data

  • A requirement for organizational transformation and cultural change

  • The difficulty in retrofitting older buildings to meet modern sustainability standards

There is also the cost involved. The research noted that “the question of who bears the cost” of improving CRE sustainability is challenging. Governments can only cover so much, and upgrades are expensive. Still, the research did note that almost all the corporate occupiers questioned indicated they consider sustainability when making rental decisions. Meanwhile, three-quarters of investors said that a “green premium” will be a primary factor in determining real estate values within the next five years.

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