5 solutions for the urgent real estate retrofit challenge

A shift in value metrics will help truly decarbonise the built environment

November 07, 2022

As cities around the world commit to ambitious net zero targets, the urgency to decarbonise real estate and increase climate resilience is clear. 

An estimated 80% of the building stock that will be here in 2050 already exists, calling for governments and real estate players to significantly step up retrofitting efforts. 

Yet businesses face an intricate patchwork of regulations, varying industry standards and a lack of established best practices. Meanwhile, creating truly sustainable value means addressing the wider complexities of environmental, social and governance (ESG) agendas. 

Within JLL’s Project and Development Services teams, we help organisations navigate these complexities; a key axis of our research is defining the purpose and potential uses of a building and identifying how it can contribute to better quality of life for inhabitants and to placemaking for wider neighbourhood regeneration.

Here are five solutions I see to today’s multiple retrofitting challenges.

Embed non-financial metrics in development guidelines

Carbon disclosure standards like the Science-Based Targets Initiative (SBTi) and CRREM Curve highlight the need to tackle direct and indirect emissions. This, along with rising consumer demand for corporate sustainability, means stakeholders across the board are increasingly seeking buildings that meet sustainability goals.

Yet for decades, the real estate industry has been working with two metrics: square metres and money. Changing how we measure value is the real challenge.

To future-proof assets and deliver competitive advantage we need to normalise non-financial metrics in assessing building performance. Retrofit strategies must identify opportunities to improve energy efficiency and climate resilience, while establishing how ESG goals will be measured and reached.

For stakeholders this means a major transition in mindset, requiring change management strategies and investment in employee sustainability skills.

Structure leases to reflect new value paradigm

Decarbonising existing assets is critical to avoiding the ‘brown discount’. Progressive owners and tenants recognise that liquidity and pricing are increasingly influenced by a building’s emissions performance. Given the acute shortages of net zero carbon buildings, early adopters of retrofitting can benefit from higher rents, reduced financial risk and improved access to capital at favorable rates, as well as attract and retain tenants more easily.

This presents a massive opportunity to rethink how we structure commercial leases to not only establish shared responsibility for retrofitting works, but also reflect the shared value in achieving social and sustainability goals.

For example, leases can integrate clauses for environmental, social and governance (ESG) actions, offering rents indexed to owners and occupiers meeting non-financial targets.

Embrace voluntary reporting standards

While new legislation such as the EU Taxonomy and the Sustainability-related Disclosures in the Financial Services Sector drive the urgency to retrofit real estate, market standards are also emerging as robust frameworks to improve building performance.

Internationally recognised reporting standards such as SBTi are being increasingly adopted and can help developers shape retrofit specifications to meet clients’ sustainability targets.

Think about whole-life carbon and beyond

The global warming crisis demands a sharpened focus on resilience to mounting climate risks. Net zero development must consider not only operational carbon emitted by a building in use, but embodied carbon emitted by the production of construction materials.

To reduce whole-life carbon, retrofit strategies should limit demolitions and use frugal interior design, reusing and recycling as much as possible. Low-carbon and bio-based construction materials are more sustainable alternatives.

Retrofits should also increase buildings’ use intensity. Office amenities and parking lots, typically empty at night, might be retrofitted to facilitate after-hours community activities. Technology such as sensors and predictive building management tools can help define space optimisation opportunities to create places that better benefit users, maximising use of existing building stock.

Form public-private partnerships

For buildings to be of sustainable value to end users and part of the fabric of sustainable cities, collaboration between civic authorities and private sectors is vital, as are incentives and programs to share expertise and finance transition.

In Paris, a major planning reform involved public consultation with real estate companies contributing best practices on how developments can embed ESG strategies. Similar collaborative methods are arising in the UK and Germany too.

This 360-degree approach uniting tenants, landlords, investors, developers and the public sector is critical to success. I think it will shortly become the norm and Europe must lead the way. An ability to work with stakeholders across public and private spheres to develop retrofit strategies will help create truly sustainable, resilient real estate value for people and for cities. 

Ultimately, in this intensifying climate crisis, the key is that we all work together to face the challenge.

Contact Nick Winter

UK Head of Project, Design and NZ Consulting