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The Green Lease is The Next Phase In Built Environment Sustainability

The Green Lease is The Next Phase In Built Environment Sustainability

Buildings account for nearly 40% of global carbon emissions, which is a clear indication of the importance of the built environment to address climate change. World Green Building Council. There has never before been a greater commitment towards reducing carbon emissions. More than 4,400 companies and 220 investors signed up for United Nations. Race to Zero campaign, which aims at reducing emissions by half before 2030.

This commitment is not only good for the planet, but also has significant financial benefits. Numerous studiesGreen building certifications have been a proven asset for the past three decades, with a rental premium in the range of 6% and a premium in sales of 7.6% for residential and commercial properties.

But there is another value driver to be aware of: healthy buildings. From the first offerings of healthy food options and fitness classes, health and wellness considerations have developed into technical building components like indoor temperature, humidity, and indoor air quality. These improvements have financial upsides. MITs Real Estate Innovation LabHealthy certified buildings are able to attract rents that are 4.4%-7.7% higher per square foot than noncertified or registered peer buildings.

Undoubtedly, the best for the planet and the best for people are inseparable. The transition to a low carbon economy and lowering global greenhouse gas emissions will be a success. Save livesThese initiatives can help reduce chronic diseases and improve the health of many people in many communities. Sometimes, however, health initiatives at the building level can be detrimental to environmental efforts. 

In the U.S., commercial buildings should ventilate at a rate of 20 cubic feet/minute. But Harvard research on healthy buildings shows that increasing the ventilation rate to 40 cubic yards per minute can increase cognitive performance. However, improved ventilation means higher energy consumption, which will result in higher real-world and environmental costs for buildings owners.

It is essential to bridge this gap in order for the next generation of world-class buildings to be built, which will be sought after by socially and environmentally-conscious corporate tenants. New certifications are emerging to help define sustainability in measurable numbers, and to incorporate healthy strategies in environmental goals.

Building owners and investors must be aware of the changing conversation about sustainability and health.

New priorities are reflected in certifications

The U.S. Green Building Council’s LEED certification was established in the 1990s. This is the most popular method of rating buildings in America today. However, LEED-certified properties, which are awarded points for addressing water, carbon, and waste, among other things, don’t always have lower greenhouse gas emissions. This disconnect can be attributed to the emphasis on green construction, but not necessarily sustainable operations.

New green certifications provide a more detailed look at the total carbon footprint of operations and embedded carbon. As sustainability efforts become more mainstream, standards such as the Canada Green Building Council v1 Zero Carbon Building Standard (CGC), LEED Zero Carbon Building Standard (NABERS Climate Active Carbon) and BREEAM Built for Performance (BREEAM Built for Performance) are gaining traction even though they are still in their infancy.

WELL and Fitwel certifications for healthy buildings are clear about what is required to create a healthy indoor environment. Harvards T.H. The Harvard T.H.

Although historically there has not been much crossover in the priorities for sustainable and healthy buildings, a new paradigm is emerging. Building tenants are looking for spaces that improve health, well being, and human performance. People expect more, and in greater numbers. JLL research found that 79% of corporate tenants believe carbon emissions reduction will be part their corporate sustainability strategy by 2025. 42% of corporate occupiers think their employees will demand green and healthier spaces.

These new determinants of property value will ripple down to impact due diligence and buyer pool, liquidity as well as ability to insure and capital access.

The path to success: Adopting technology and new standards, matching investor and occupancy priorities

As property owners and investors make difficult decisions, they must prioritize improvements to their properties and combine initiatives that support sustainability and health. To understand the impact of decisions to upgrade systems and fit out tenant spaces, it is important to use tools such as Europe’s Carbon Risk Real Estate Monitor (CCREM), or to work with experts like third-party climate data firms.

A new generation in property technology can help ensure that sustainable and healthy improvements are being made. Data that can be used to help corporate tenants and investors record and report precise, quantifiable results from environmental and wellness initiatives will be an advantage. Real-time sensor technology is needed to monitor CO2 emissions, temperature, comfort, and overall employee engagement.

While it may seem like a win for tenants and owners alike, the benefits from sustainable building and wellness solutions are different for each party. This can cloud motivations and affect investment decisions. Tenants may not be motivated by a gross lease where the landlord pays all the utilities and the rent. A triple net lease, where tenants pay their utility bills, may be more appealing to landlords. This is because they are not likely to want to spend the capital expenses necessary to lower operating costs.

This type of problem can be overcome by tools such as the green lease. It aligns the interests both of the building owners and tenants through clauses including cost recovery, submetering and data sharing and minimum efficiency standards. This negotiation can help landlords as well as occupiers to overcome the obstacles to splitting incentives.

There is a lot of common ground between all parties. Investors and occupiers both prioritize operational efficiency and lower costs as part their environmental goals. All sides are taking bold climate pledges and will look to real estate as a part of those commitments, increasing the motivation to reach win-win deals.

This journey is full of learning curves for all those involved in touch real estate. It is a complex, challenging and crucial process that can be both iterative and challenging. One thing is certain: starting early will reap the benefits, and there is a growing demand for green, low-carbon, and healthy space.

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