Climate change knocking, but not all managers are home

Real estate investors are still “bullish on the Sun Belt,” driven by a big influx of people moving there for a better quality of life, lower cost of living and lower taxes, especially in Florida and Texas, Mr. Swartz said.

So far, they have been rewarded, he said. The most pronounced increases in real estate prices have been in the Sun Belt due to the increased demand. 

Even so, real estate managers are beginning to recognize that real estate is a big consumer of energy and a significant contributor to greenhouse gas emissions, both from the maintenance and the construction of projects, he said. Concrete and steel are “highly carbon intensive,” Mr. Swartz said. Even so, “we are building more buildings, not cutting back on that,” he said.

However, recent studies are showing that more sustainable, less carbon-intensive properties offer better returns, Mr. Swartz said.

A 2020 Massachusetts Institute of Technology study revealed that properties with healthy building certifications, for example, reaped higher rents of 4% to 7% per square foot over uncertified buildings.

A healthy building promotes the physical, psychological and social health of its occupants with components including good ventilation and air quality, a comfortable temperature, low noise levels, and natural light, according to the Harvard T.H. Chan School of Public Health.

Eighty-seven percent of the surveyed real estate executives reported increased demand for healthy buildings over the past 12 to 24 months, and 92% expect demand to grow over the next three years, according to a recent report by the United Nations Environment Programme Finance Initiative.

Green buildings also garner higher rents and capital values, while costing less in monthly operating and maintenance costs, a November report by real estate money and asset manager CBRE Group Inc. said.

Rent for U.S. offices that are LEED-certified are 5.6% higher than those for non-certified office buildings, CBRE’s analysis shows. LEED is a rating system by the U.S. Green Building Council. 

Currently, rental premiums on green buildings are “only discernible in the office sector,” CBRE noted. Green buildings also tend to be newer, making the premium analysis more difficult, CBRE said in the report.

Real estate managers are starting to take notice of the mounting evidence of a “green premium,” with environmentally friendly processes starting to be built into due diligence and the financial contract terms, Mr. Swartz said.