The United Nations’ 2021 Global Status Report for Building and Construction says that 27 percent of the world’s CO2 emissions related to energy come from how buildings are run. When construction is added, that number goes up to 37%. So, the real estate industry will have to do a lot to cut down on these emissions, which is the responsibility of the people who own the assets.
Sustainable practices have been slow to catch on in real estate, but now there is enough demand to start making a change. Tamara Chernomordik, the Senior Director of ESG at Kimco Realty, said it’s all about keeping an eye on the future and knowing what people want. What was once seen as an optional cost for making improvements is now something that investors, tenants, communities, and partners expect. Retail tenants want green spaces, especially those who care about the environment.
Chernomordik added that emerging laws and regulations will also drive the shift toward more sustainable real estate. Local Law 97, which was passed by New York City in April 2019 and limits how much energy a building can use and how much greenhouse gas it can put out, is an example of a government mandate. Also, in September 2021, the National Conference of State Legislatures put out an analysis of how each state handles policies for making buildings more energy efficient. Even though there had been progress over the years, there were still about 30 states at the time that didn’t have any building energy efficiency policies.
Mixed-use properties give people a chance to try out and justify the cost of green improvements on a large scale. On May 12, Breana Wheeler, who is the Director of Operations for the Building Research Establishment, held a webinar with industry leaders to talk about how to bring retail assets back to life. All of the speakers brought up the scale of mixed-use properties as a benefit that should be taken into account. When the number of people in an area goes up, it takes less time and money to get to work, shop, and live, and multiple buildings can share power and water sources.
Rhianne Menzies, Director of ESG, Retail at Brookfield Properties, said that net-zero is all about the way everything fits together, sometimes putting solar panels on each building wouldn’t make financial sense. Having the scale across the property, including the parking lot, carport covers, and roofs, would just make a lot more financial sense. She added that when you can start to connect the stones, it can be complicated and take a lot more thought up front, but it can make a lot more sense operationally in the long run.
Mixed-use is also good because it lets you try out sustainable strategies. For example, Emily Paciolla, Director of Sustainability at Federal Realty Investment Trust said you can try out different things, like different building standards, strategies, material choices, or efficiency standards, and then use what you’ve learned on our more standard strip centers.
Kimco’s Witmer at Pentagon, a LEED Silver, Signature Series®, mixed-use property near downtown DC, is an example of a mixed-use development that was made in a way that is good for the environment. This project prevents about 11% of CO2 emissions each year. It saves about 65% of the water used for irrigation and was built with 28% of the building materials that came from the area. Kimco is also spending money to update the lighting in common areas, add submeters, and add controls that save energy to its existing properties.
Energy efficiency is one of the easiest and most doable ways for a property owner to make improvements. Federal Realty’s 2021 Environmental, Social, and Governance Report, which came out this month, says that the company has upgraded or is in the process of upgrading almost 65 percent of its properties. One of these upgrades is the installation of LED lighting in landlord-controlled common areas. Federal’s leases with tenants also have green features, such as submetering and the option to buy renewable energy made on-site. Since many retail tenants are in charge of their own energy use and utility bills, green lease terms encourage cooperation and bring in tenants who are like-minded.
The owner of the property has also put up solar panels on almost a quarter of its properties. These arrays produce 13.6 megawatts of power on-site, which is more than any other publicly traded shopping center REIT. Installing renewable energy on-site is something that many landlords do, like Kimco and Brookfield. But it costs a lot and is a large-scale, long-term investment.
In the future, more tenants will want retail buildings that are good for the environment, and more governments will want buildings that are good for the environment. And retail asset owners like Kimco, Brookfield, and Federal will stay relevant with stakeholders and get long-term benefits if they are ahead of the curve in estimating these needs. The rest of the industry will have to invest and change if it wants to have the same kind of longevity.