How are green leases supporting real estate’s decarbonization drive?

Avoiding the ‘brown discount’

For landlords, there’s emerging evidence in some countries such as Germany of a brown discount both in terms of rent and asset value on divestment, while in others such as the UK, highly sustainable buildings command a green premium.

“As corporates increasingly take action based on science-based sustainability targets, those major landlords who can offer green leases are well-positioned,” Drewell says. 

Furthermore, being able to offer green leases to tenants seeking multiple locations across the globe may soon distinguish more forward-thinking landlords from their peers.

“While it’s yet to occur, we’re not far away from a point where occupiers with space in several countries require green lease contracts,” says Drewell. 

“We’re seeing multinational property owners developing consistent sustainability standards across their global portfolio, and green leases are tool being used to manage performance and adhere to minimum standards.”

Supporting future growth

While green leases are increasing in number, more industry standards that underpin green leases are needed to support further growth, Drewell believes.

“Progress has been made in defining what makes a lease green – and much of that is due to occupiers and landlords increasingly working in tandem,” he says, pointing to the fact that 78 percent of investors and 85 percent of occupiers agree that a strong partnership between cities, investors and occupiers is instrumental in driving decarbonization.

Some countries are ahead of the curve. In France, green lease clauses are mandatory for all large commercial leases. All parties are required to share data, regularly review a property’s environmental performance and commit to a program of improvements. Germany’s central real estate body, ZIA, set out its guiding principles for green leases in 2018.

In the U.S., offices, industrial buildings and data centers are increasingly turning to green leases. The country’s Green Lease Leaders recognizes the likes of AEW Capital Management, GITS Partners, Prologis and Tishman Speyer.

The challenge is now converting growing interest into tangible action among both landlords and tenants.

“Closer collaboration and partnerships will be key to meet net zero carbon targets within real estate,” says Walia. “Green leases have a way to go to become mainstream in the market but as more companies roll out their sustainability plans, we’ll see broader adoption.”