Renewable energy is becoming an increasingly integral part of private real estate investment. With the property industry responsible for about 40 percent of global emissions, managers are turning to green energy sources to help power their buildings. Indeed, industry heavyweights such as Hong Kong-based manager ESR and New York’s CBRE Investment Management have announced large-scale green energy investments in their portfolios in recent months.
Renewables are the fastest-growing energy source for buildings globally, with usage rising by 4.1 percent annually from 2009 to 2019, according to ULI Greenprint’s Renewable Energy Strategies for Real Estate report published this year. But there is much runway for further growth: renewable energy accounted for only 14.3 percent of total energy use in buildings as of 2019, whereas the US Energy Information Administration projects the global energy consumption of buildings to increase by an average of 1.3 percent per year until 2050.
Of the 1,820 portfolios tracked globally by the Global Real Estate Sustainability Benchmark, 34.8 percent have on-site renewable energy systems. On-site renewable power generation, however, only covers 1.71 percent of the energy consumption at those properties, according to GRESB.
Still, renewable energy “is the easiest way to make the biggest inroads” into meeting net zero targets, says Alistair Calvert, chief executive at pan-European manager Clarion Partners Europe. “It’s quite hard to reduce the embedded carbon in a logistics building.”
Green energy investment in commercial real estate stands to accelerate as the global energy crisis stemming from the war in Ukraine further underscores the need to reduce dependence on natural gas and other fossil fuels. Energy shortages and related record-breaking energy costs have also helped to fuel existing decarbonization efforts intended to shield assets from changing regulatory and investor demands.
Renewable energy systems that can be integrated into buildings include solar photovoltaic (PV) panels, wind turbines, geothermal heat pumps and hydrogen fuel cells. However, an audience poll taken during a PERE logistics webinar in September revealed that attendees’ renewable energy investments were focused on two primary areas: 86 percent of respondents invested in solar, while 14 percent invested in electric vehicle charging stations, which are increasingly using solar energy as their power source. Both of these strategies will be examined more in-depth on the pages that follow.
As it currently stands, there are limits to renewable energy adoption in private real estate. “There are still some challenges,” observes Calvert. “We’re increasingly having difficulty feeding energy back into the grid, because the electricity grids are not fit for purpose. While we are producing more electricity on our building roofs now than the building is using, once everything is electrified, including the trucks and vans, etcetera, then that might be a bit different story.”
The pivot to renewable energy “is going to take some time,” acknowledges Rick Walters, head of standards and innovation at GRESB. To aid in that transition, property owners should be focusing not only on using renewable energy, but reducing energy consumption to lower building emissions, he notes: “Because if buildings get 50 percent more efficient, you only need half as much energy for those buildings, making the task of renewable energy much easier.”
For this month’s cover story, PERE journalists spoke with more than a dozen sources to uncover the complex considerations involved with coupling renewable energy with real estate investment.