Sustainable Real Estate: Key Trends and Future Trajectories

What Is Sustainable Real Estate?

Sustainable real estate includes commercial and residential real estate property that is designed, built and operated in a way that minimizes environmental impact. The trend towards sustainability in the real estate industry has been driven by a number of factors including increasing global awareness of the need to protect the environment, stricter government regulations and the desire to save money on operating costs.

There are a variety of ways to make a property more sustainable such as using green building materials, following a regular maintenance schedule, upgrading to energy-efficient lighting and appliances, and investing in onsite renewable energy systems (e.g. solar photovoltaic, wind, microhydropower and hybrid systems).

Whether it’s a new build or a retrofit (also referred to as greenhabbing, or green rehabbing an older building to be more eco-friendly), the real estate industry is moving towards sustainability because a low-carbon building is proven to have lower operating costs, improved resale value and higher occupancy rates. It not only makes sense for forward-thinking developers, real estate agents, buyers and tenants, it is the right thing to do for the planet.

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The Benefits of Sustainable Real Estate

Sustainable real estate is becoming more popular among developers, real estate agents, buyers and tenants alike. Sustainable real estate development takes into consideration the entire life cycle of a project, from planning and construction to operation and maintenance.

Whether you’re a real estate agent marketing a green home or a business passionate about doing good, there are several benefits to investing in sustainable real estate:

Lower operational costs – Sustainable buildings are designed to conserve and use resources more efficiently, thus lowering the costs that come from heating, cooling and operating the building.
Improved resale value – Buildings that meet current sustainability performance standards and include up-to-date infrastructure and equipment gain higher resale value. For homes specifically, those with energy efficiency ratings sell for 2.7% more than unrated homes.
Enhanced reputation – Operating out of a sustainable facility that minimizes your environmental and social impact enhances company reputation and reflects a commitment to the community and the planet. This in turn wins stakeholder trust, strengthens community relationships and attracts new customers.
Lower carbon footprint – From design and construction to procurement and operation, every point in a building’s timeline has an impact on the planet. Investing in a sustainable building ensures the least amount of carbon emissions are released and that the project avoids negative impacts to the environment and communities once complete.
Healthier communities – Sustainable buildings create healthier communities due to less intrusive and pollutive building methods, lower use of toxic materials (e.g. paints containing VOCs), less resource-intensive maintenance requirements and the creation of spaces that promote wellness for both humans and the surrounding environment.
Greater community resilience – Sustainable buildings also support community resilience to withstand the impacts of climate change. Sustainable buildings feed back into the local community in terms of conserved resources (preserving local groundwater, forests, etc.), biodiversity (protecting health of local wildlife and water bodies), lower strain on aging utility infrastructure (reducing the risk of damage and repair), local revenue (sourcing materials from local businesses), and new green jobs ( there’s a growing need for developers, builders, policymakers and agents knowledgeable about sustainability).

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The Challenges of Sustainable Real Estate

Sustainable real estate and development aims to meet the needs of the present generation without compromising the ability of future generations to meet their own needs. When it comes to the built environment, this means creating buildings and communities that are environmentally responsible, socially equitable and economically prosperous.

However, there are some unique challenges that need to be overcome in order to make sustainability a standard in the real estate and green building industries.

One challenge is the lack of standardization when it comes to measuring sustainability. There are numerous rating systems and indicators that can be used to assess sustainability, but there is no one system that is universally recognized or used. This makes it difficult for buyers and tenants to compare properties and make informed decisions about where to invest or live. It also puts pressure on developers and builders to stay on top of the continually evolving laws, regulations and certification requirements surrounding green building.

Today’s top standards and certification systems for green building include:

LEED (Leadership in Energy and Environmental Design) – developed by the U.S. Green Building Council (USGBC) to certify that buildings meet specific performance standards such as energy/water efficiency, CO2 emissions reductions, materials and resources, among others. Based on a point rating system, LEED Certified, Silver, Gold and Platinum certifications can be applied to new builds, existing buildings and major renovations. LEED also has more specific certifications designed for healthcare, schools, retail, homes and neighborhoods.
BREEAM (Building Research Establishment Environmental Assessment Method) – launched by the Building Research Establishment (BRE), BREEAM applies to both new construction and refurbishments, and evaluates environmental performance across nine categories including Energy, Land Use, Pollution, Health & Wellbeing, and others. BREEAM looks at the building design, the construction process, how materials are procured and operation. BREEAM ratings range from Outstanding, Excellent, Very Good, Good, Pass, and Unclassified.
ENERGY STAR Certification – ENERGY STAR, popularly known for its energy efficiency label on products, offers the same performance certification for buildings. Based on strict criteria set by the EPA, the ENERGY STAR Certification requires buildings to score 75 or higher on a 1–100 rating scale. A building’s score reflects its actual measured energy use and takes into account differences in operating conditions, regional weather data and other factors.
WELL Certification – Applicable to new builds and existing buildings, WELL Certification looks at user behavior, operations management and building design to determine the impact on occupant health and wellbeing. Seven concepts are investigated including Air, Water, Nourishment, Light, Fitness, Comfort and Mind. WELL Certified buildings nourish physical and mental health, and enhance the mood and performance of its occupants.
Fitwel Certification – Fitwel Certification also serves to improve occupant health and wellbeing by addressing a range of behaviors and health risks. Fitwel Certification awards points across seven health impact categories, as well as provides design and operational strategies for enhancing building performance and wellness.
Living Building Challenge – The Living Building Challenge is an ambitious program in which buildings go beyond mitigating negative impacts to operate regeneratively. A certified Living Building is one that has achieved Net Positive Energy, Water and Waste, meaning that the building conserves more than it consumes. The Living Applicable to new construction, existing buildings and landscape/infrastructure (e.g. parks, bridges, trails, etc.), the Living Building Challenge calls for buildings to generate their own energy, capture their own water and process their own waste, and there are measures put in place for multiple buildings to share and operate green infrastructure together. The Living Building Challenge consists of seven performance categories, or “petals” – Place, Water, Energy, Health & Happiness, Materials, Equity and Beauty – which each petal subdivided into Imperatives for a total of twenty Imperatives within the program.
SKA Rating System – Established by the Royal Institute of Chartered Surveyors (RICS), the SKA Rating System determines the environmental performance of non-domestic fit-outs, or the process of making an interior space ready for occupation (e.g. furnishing, decorating, electrical setup, etc.). The SKA assessment process is broken down into three main steps: 1. Design/Planning, 2. Delivery/Construction and 3. Occupancy Stage Assessment (reviews fit-out performance after a year of its initial completion). The SKA Rating System grants projects a Bronze, Silver or Gold rating.
For real estate agents specifically, the National Association of Realtors (NAR) launched their Sustainability Program in 2017 to show the business case for sustainability within real estate and highlighting the opportunities for agents who are knowledgeable about home performance, valuation and sustainable development. The NAR Sustainability Program follows 15 Sustainability Strategic Priorities such as: adding environmental sustainability language to NAR policies, standards and other institutional documents, identifying social issues tied to real estate and setting improvement goals, advocate for sustainable housing options and real estate job growth, among many others.

Just like green building standards and regulations should evolve and improve over time, the sustainability training and education for developers, builders, agents and buyers must mature as well. A lack of awareness around basic concepts of sustainability and industry-specific green practices can make abiding by sustainability regulations much more difficult.

For sustainable real estate, a lack of awareness can translate into:

A lack of a knowledgeable expert team
The missed opportunity to promote the buyer and community benefits of sustainable buildings/homes
A delayed approval process for green building projects
Regulatory fines and penalties

Another challenge is the affordability of energy-efficient and renewable energy products. Particularly for marginalized low-income neighborhoods, many communities cannot afford the latest green upgrades and technology such as solar panels and electric vehicle charging stations. Even replacing outdated home appliances with energy-efficient models has expensive upfront costs that are unobtainable for some households and companies.

For sustainability to truly become the standard for real estate, investment opportunities in renewable energy and efficiency must be more feasible for all communities. Luckily, there are several state and municipal incentive programs bridging the gap. Some helpful resources to know are:

Database of State Incentives for Renewables & Efficiency (DSIRE) – for finding efficiency and renewable energy policies and incentive programs available in your area. Filter your program search by state, program type (tax credit, grant, building code, etc.), technology (energy efficiency, electric vehicle, etc.) among other parameters.
For WaterSense labeled products, use the WaterSense Rebate Finder to see if there are any water-saving rebate programs available in your area.
For ENERGY STAR certified products, check out the ENERGY STAR Rebate Finder.
Also, contact your local utility and energy providers to see if they offer any special incentives for customers.

Tying in with the challenge of affordability, sustainable real estate is also hindered by buyer discouragement from high initial investment. The price of green building and technology continues to drop; For instance, the price of solar has dropped 89% within the last decade. However, at first glance, sustainable homes are still more expensive to build and to buy, which often discourages buy-in for green alternatives. It’s important for policymakers, developers, builders and agents to network their resources and market sustainable development in a “no brainer” way that shows the upfront costs versus long-term cost savings for buyers. Providing concrete data of savings and benefits, along with streamlined processes for permits, rebates, locating green builders, etc., makes achieving sustainability a more practical and less confusing pursuit for buyers.

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Looking into the Future

The green building movement has been gaining momentum historically for years, paving the way for sustainability to become the standard for real estate. Looking into the future, there are some tried-and-true trends that will continue to persist in the real estate industry.

One of the most important trends in sustainable real estate is the increasing focus on energy efficiency. With innovations in energy-efficient appliances, automation technology and intentional design, it is now possible to build homes and office buildings that use less energy and use it effectively.

Another major trend is the use of ethically-sourced, green building materials. Green building projects are using more low-carbon materials such as reclaimed lumber and steel, as well as plant-based materials like hemp and bamboo that are relatively low-maintenance and less water-intensive to grow.

Finally, sustainable real estate is supported by buyer preference and industry compliance. There is a growing number of forward-thinking developers and eco-conscious business/homeowners wanting to lower their environmental impact and utility bills. But it’s not just a personal preference rooted in doing good for the world. Following more sustainable practices and minimizing environmental impact is slowly becoming mandatory for all industries. The U.N. Sustainable Development Goals (SDGs) serve as the global roadmap for addressing and improving environmental and social issues facing the world today.

Summary

The real estate industry is under pressure to become more sustainable and the opportunity to drive this change is now. To recap:

There are several benefits to sustainable real estate and development:

Lower operational costs
Improved resale value
Enhanced reputation
Lower carbon footprint
Healthier communities
Greater community resilience

There are also some unique challenges:

A lack of standardization in sustainable development
A lack of awareness around sustainability and industry-specific green practices
Affordability of energy-efficient and renewable energy products
Buyer discouragement due to high initial investment

For more information on sustainable real estate and how to build and retrofit a green home or office, check out our other articles: