ESG, PropTech…And Bamboo. What’s Driving Commercial Real Estate Sustainability Right Now?

Commercial real estate sustainability is a topic that has risen to the forefront of developer’s agendas in recent years as the battle against climate change impacts the property industry. 

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If you’re a CRE developer, you’ll have noticed this but may be uncertain how to deal with it. After all:

• Keeping up-to-date with sustainability trends in commercial real estate demands a lot of time and attention.
• The fast-changing nature of green building technologies and regulatory requirements can be overwhelming.
• Knowing how to act on these trends is tough to work out. 

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Yet failing to equip your developer toolkit with the latest happenings in commercial real estate sustainability could be fatal to your portfolio over the long term.

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Investors are now hot on building for sustainability and are actively seeking out professional building projects that are keenly aware of their environmental impact. 

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This article will help you meet this demand for sustainable buildings by informing you of five key trends happening right now. 

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Knowing these advancements will help you decide the action you can take to build more sustainable properties and make your project as successful as possible.

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Ready? Let’s get started.

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What does sustainability mean in commercial real estate?

Developers will have heard about sustainability in commercial real estate much more frequently over the last few years, but what does it actually mean?

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The bottom line is that it’s anything that helps make commercial buildings environmentally friendly. This involves using eco-friendly materials, reducing energy consumption, and lowering greenhouse gas emissions. 

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If building owners can do this, then they’ll improve building performance, increase asset value, and meet sustainability goals. 

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They’ll also be more likely to achieve a cost-effective construction that enhances the overall value of their build.

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“It doesn’t matter what side of the climate change issue you side with, technology is moving rapidly toward sustainability,” says Dave Marcinkowski, a real estate entrepreneur writing for Forbes. “Simply put, saving people money and making their lives easier and more productive is an excellent business model. I have always said, "Do the right thing, and profitability will follow."

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That said, let’s take a look at the five sustainability trends making their mark on the CRE market right now.

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The 5 commercial real estate sustainability trends taking hold right now

Commercial real estate sustainability is a broad church with lots of advancements taking place, so to make it simple we can break it down into five key developments over the last few months. 

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1. ESG reporting is becoming mandatory in many areas

ESG is set to become a key part of a CRE developer’s vocabulary if it isn’t already.

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But what is ESG in commercial real estate and how will it affect developers?

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Deloitte’s Commercial Real Estate M&A Outlook for 2024 has pointed out how more investors than ever are requesting data about Environmental, Social, and Governance compliance during their due diligence checks. This has been brought about by important new regulations, like New York City’s Local Law 97 which sets building emission limits on buildings over 25,000 square feet. 

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Other state authorities, and even the federal government, are set to follow suit and demand up-to-date ESG data.

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If investors don’t see that your building is compliant, then they’re likely to get cold feet. Heavy fines are one threat to them, but they also know that ESG-friendly projects are more attractive to investors and tenants. 

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Making sure your development is in line with these new reporting standards is a smart move in a market that's increasingly focused on sustainability.

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2. A surge in green certification

Getting hold of green certifications is one way to make ESG compliance easier, and many developers are prioritizing this as we head toward 2025. 

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The most coveted include the LEED award (Leadership in Energy and Environmental Design) and BREEAM (Building Research Establishment Environmental Assessment Method), both of which are sought after by real estate investors and occupiers. 

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71% of US buyers said that they use such certifications to understand the sustainability credentials of a building, while just over two-thirds (65%) said they help with marketing the property, according to a recent Statista survey. 

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In short, they’re becoming a must-have for CRE developers.

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  Source: Statista

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These certifications not only improve the environmental performance of corporate buildings but also help you keep energy costs down while the property is under your stewardship, a period that may drag on for longer than you expect should you struggle to sell. 

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3. A transition toward renewable energy sources

Meeting the ESG requirements and green certs laid out above is tough, but integrating more renewable energy into development efforts plays a big role in achieving them. It may even help you out with your real estate investing tax strategies.

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First up, wind turbines, solar panels, and geothermal devices (including HVAC systems) are all increasingly involved in developer projects, and are all hallmarks of the Scope 3 action plan, an initiative recently set up by 120 CEO Climate Leaders committed to accelerating toward net-zero carbon emissions.

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It marks one of the latest stages on the road to decarbonization which has already made it easier for developers to reduce their dependence on fossil fuels through more accessible (and cheaper) forms of green energy. 

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As a developer, you might even qualify for tax credits if you incorporate renewables well, according to Deloitte’s Renewable Energy Outlook for 2024. New climate legislation, such as the Inflation Reduction Act (IRA), offers tax incentives for installing solar panels or energy-efficient infrastructure as the government encourages developers to adopt sustainable practices. 

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4. AI-powered PropTech is now a common tool

Artificial intelligence (AI) is getting mixed reviews at the moment, but in the commercial real estate industry it’s proving to be a force of positive change. 

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AI-powered building management systems (BMS) are helping property managers create green buildings. More specifically, smart technologies like automated lighting and energy-efficient HVAC systems are helping to optimize performance, making them an essential tool in a developer’s toolkit. These systems can be programmed to adjust based on real-time data, reducing energy use (and waste) and minimizing the building's carbon footprint.

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AI's predictive power can also help to lower operating costs by forecasting energy needs and managing resources efficiently.

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These tools are helping developers carry out retrofitting projects, where they upgrade existing commercial property, or design a new one. In each case, AI is helping design a more sustainable future for the building with smarter designs, better air quality, and more natural light.

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5. Innovative materials and community-focused design

Another key area of focus in 2024 is the selection of sustainable materials and the adoption of green construction practices in the development process.

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Eco-friendly materials like bamboo and low-VOC paints are helping developers minimize waste and create healthier indoor environments. Prefabricated construction methods are also gaining traction due to their energy efficiency.

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Beyond materials, developers are also creating more green spaces as community integration becomes a priority. The pandemic amplified a need for more natural surroundings after lockdown and much urban planning now includes the development of green roofs and communal gardens to enhance the feeling of well-being for residents and support local biodiversity.  

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Cities in Europe, like Barcelona and Copenhagen, have proved that is possible, and developers are looking to replicate it in the United States.

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The advantages for developers are clear, too: reduced operating costs mean more profit, while demand for green-focused properties drives up property values. 

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