Bold steps real estate leaders can take to help accelerate the transition to a low-emission future
Climate-action policies and market forces are driving innovations across industrial systems, infrastructure, and supply chains, while introducing new opportunities by which organizations can create competitive advantage. Deloitte Global estimates that achieving net-zero emissions by mid-century could increase the size of the world economy by US$43 trillion through 2070.
Catalysts for real estate investment in sustainability
The real estate industry has an important role to play in achieving rapid global decarbonization. Multiple, converging forces point to the need for real estate organizations to adopt a more integrated approach to tackling—and reaching—sustainability goals. They also illustrate a need for firms to focus on sustainability investments now. These include:
Tenant expectations
From 2022 to 2023, the number of corporate occupiers, including large office, retail, or industrial tenants with validated, science-based greenhouse gas reduction targets doubled. Demand for low-carbon spaces, those that have lower emissions from property operations, is expected to outstrip new supply: For approximately every 30 square feet of demand, only 10 square feet is expected to be built by 2030. Reduced demand for inefficient buildings can significantly increase the risk of stranded assets and further widen the pricing gap between sustainable and non-sustainable assets.
Insurability
The intensity and frequency of extreme climate events have proliferated over the past several decades. The ensuing disaster losses have contributed to a spike in real estate organizations’ insurance costs: They’ve doubled from 10 years ago. Some insurance companies have withdrawn from high-climate-risk markets altogether. In Deloitte’s 2024 FSI Predictions series, we forecast insurance costs per building in high-risk states to double again by 2030, increasing by over 10% a year.
Decarbonization
In 2024, the Biden administration released the US National Blueprint for Decarbonizing the Economy. It targets a 35% reduction in building energy use intensity per unit of floor area by 2035 and a 50% reduction by 2050. Advances toward achieving these objectives could require building retrofits to augment energy sources or additional resource consumption efforts.
Renewable energy
The International Renewable Energy Agency’s 2023 report reveals that, when comparing all of the climate change mitigation efforts real estate owners can take, incorporating renewable sources for electricity and heating, ventilation, and air conditioning (HVAC) systems would do the most to help keep the average global temperature rise below 1.5 degrees Celsius. Regulations around the globe, such as the Inflation Reduction Act in the United States, and The Green Deal Industrial Plan or the REPowerEU Plan in Europe are creating a more supportive environment for real estate owners to invest in renewable energy sources.
Material circularity
Governments around the world are directing organizations to take a more holistic approach to whole-life carbon assessments, including sourcing, disposal, and reuse of materials. In Europe, regulations like the Carbon Border Adjustment Mechanism target imports of carbon-intensive materials such as cement, iron, steel, and aluminum into the European Union and prevent manufacturing displacement to countries with less stringent emission regulations.
Operationalizing sustainability: addressing challenges, identifying stakeholders
Near-term challenges may impede real estate firms’ sustainability progress. Challenges to greater cross-functionality of even core business functions in real estate exist both structurally and culturally. Some organizations have been run with fixed team structures, commoditized information, and some even operate as independent companies by geography. Siloed operations and ways of thinking can also be key challenges: At best, siloed departments are not speaking the same language and, at worst, they’re simply not talking to each other. And by not talking to each other, they may not know that their interests are aligned.
One big obstacle to investment is the difficulty assessing the return on investment of sustainability investments. In Deloitte’s 2024 Commercial Real Estate Outlook survey, nearly half of the real estate CFO respondents were unable to identify the tie between sustainability strategies and financial returns. To help gain visibility into how sustainability investments can help drive financial ROI and manage risk, real estate firms can adopt a multidisciplinary, integrated approach that aligns sustainability with other business functions of the organization. They can take a targeted approach that leverages comprehensive industry-specific solutions to help achieve sustainability goals while also enhancing operational efficiencies, driving sustainable growth, and pursuing competitive advantage in a rapidly evolving market. This can help provide leaders with a fuller picture of how investments are paying off—and what still needs to be done across the enterprise.
