The next two years will see a “tipping point” for office and logistics occupiers, with a growing focus on tenants needing space that supports their ESG goals, according to a new paper from JLL.
The agency’s research, covering the US, Canada, Europe and Australia, found that one in three leases tied to a carbon commitment will expire by then, but the supply of space that meets the right criteria is “lagging” across major cities.
Guy Grainger, global head of sustainability services and ESG at JLL, said: “Time is of the essence for the real estate industry. This supply/demand imbalance indicates that investors are underestimating the value creation opportunity. This is a time to use leading indicators rather than lagging indicators. We are in a new world where inaction over decarbonisation will see investments fall into economic obsolescence in the coming years, while for real estate tenants, this growing need to show progress against carbon commitments will lead to price friction and a race for low carbon buildings.”
In London, low-carbon demand is expected to exceed supply by 35% by 2030. That figure rises to 54% in Paris and 65% in New York. Globally, demand is at its greatest in the banking and finance, government and technology sectors, JLL said.
JLL research from January 2024 found that 50% of UK investors said occupier requirements were one of the biggest ESG drivers behind decisions to buy or bid on an asset.
However, some owners have questioned the strength of demand from occupiers. At a MIPIM panel held last week, Elliot Prosser, an executive director at JP Morgan Asset Management, said of the environmental credentials of an office building: “It’s a priority for the investors, it’s a priority for the capital markets, and it’s absolutely paramount for anything that you’re looking to sell into the market today. But it’s just not there for the for the underlying occupiers, especially those smaller guys. Investors are putting an awful lot of money into buildings so that they can sell them, not so they can lease them.”
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