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_Unlocking the benefits of energy efficiency and net zero initiatives in commercial real estate

Olivia McCue, ESG Consultant at Knight Frank, explores the benefits associated with energy efficiency and net zero initiatives and their significance within commercial real estate.
Olivia McCue November 06, 2023

The significance of setting energy efficiency and net zero business goals

The commercial real estate sector is facing the sizable challenge of reducing carbon emissions across new and existing properties. Whilst we acknowledge the performance gap that exists between buildings ‘as designed’ and those ‘in use’, along with the importance of embodied carbon, we cannot ignore the role of energy efficiency and net zero initiatives in maintaining progress towards net zero pledges. The rise in adoption of science-based targets, encouraged by initiatives such as the SBTi, reflects key commitments as referenced within the 2015 Paris Agreement set out by the United Nations. This allows for businesses and other institutions, including real estate and asset owners, to be held accountable for their energy performance, carbon emissions, resource use and pollution. A key method for the real estate sector to meet net zero pledges is through a holistic understanding of how buildings operate, focusing on optimising energy and identifying carbon hotspots.

We explore the benefits associated with these initiatives and their significance within the industry.

Cost benefits

Better monitoring of energy usage enables building managers to optimise the value chain, improving sustainability and, ultimately, reducing costs. By using less energy across real estate assets, portfolio-wide energy bill reductions may occur, allowing cost savings and/or re-allocation of capital elsewhere.

Additionally, resilience to climate change-related risks such as extreme weather and flooding can reduce the associated financial risk of these events and withstand damage and repairs.

The cost within the service charge to help get to net zero is often front of mind. Our expert team of consultants can estimate the cost of transitioning to cleaner energy sources and help building owners determine how much they can recover through service charges, ensuring asset liquidity and value preservation.

Competitive advantage and productivity gains

It's not just about economics; energy efficiency offers a competitive edge in the commercial real estate market and can enhance the attractiveness of assets and portfolios. It helps to maintain building relevance to the external market. Sustainable buildings also attract environmentally conscious occupiers, potentially reducing tenant turnover and improving employee retention and wellbeing.

Productivity has also been proven to increase in energy-efficient buildings. For example, a study by Harvard University found that certified green buildings improved cognitive performance by 26%.

Quality assurance through industry benchmarking

The presence of industry benchmarking can help promote the adoption of sustainable business practices. There are various industry benchmarks such as BREEAM, GRESB and NABERS that demonstrate quality assurance, compliance and future-proofing to the market.

Long-term energy security and resilience

Cost of living challenges have been felt across the UK. The volatility of energy and gas prices has had a profound impact on financial management for households and businesses. The risks surrounding energy security, geo-political conflict and grid capacity make energy and fossil fuel usage a motivating factor in real estate decarbonisation.

As previously mentioned, reducing energy demand in buildings not only cuts expenses but also positions businesses to weather energy price volatility and geopolitical challenges. By focusing on climate resilience and adapting strategies, organisations can turn these challenges into opportunities for long-term value creation.

Job creation and economic impact

Energy efficiency and net zero have the potential to create numerous sustainability-related roles in various sectors of the economy. The Climate Change Committee (2023) estimates that between 135,000 to 725,000 net new jobs can be created across the UK in low-carbon sectors, including building retrofits, renewable energy generation and electric vehicles.

Training for roles in sustainable building practices, such as experts in retrofit, construction workers, architects, and energy auditors/assessors, will become necessary to equip the workforce with the skills needed to meet the demand for green and energy-efficient buildings.

The opportunity to grow and activate a new workforce in the commercial real estate sector can create high-quality jobs, facilitating the green transition in the built environment.  

Concluding thoughts: Energy efficiency in operations

Energy efficiency and net zero initiatives in commercial real estate offer a multitude of benefits, from financial savings and competitive advantages to more job opportunities. These initiatives are integral to both short-term profitability and long-term sustainability in the ever-evolving built environment. As the industry continues to evolve, staying ahead of energy efficiency and net zero goals becomes imperative for investors, building managers and occupiers alike.

Improving energy efficiency within business operations must be viewed as a dynamic learning process for organisations. A key step is to embed operational energy efficiency improvements as part of an organisation’s wider strategic actions and aims.

How organisations choose to reduce operational energy efficiency is specific to the asset in question and should be dealt with on a case-by-case basis. The UK has committed to reaching net zero emissions, and the commercial real estate sector must help take steps to achieve this mission. Although there is no silver bullet approach to cutting down operational emissions, there is creativity in the real estate industry as to how to approach this and engagement with different actors is essential.

How can we support your ESG strategy?

If you'd like to learn more about how we can support your ESG strategy and work towards your net zero goals, please get in touch.