A New Generation of Green Leases Support CRE's Decarbonization Drive

Green leases are once again growing in popularity as landlords and tenants increasingly work together to support real estate’s path to net zero.

A green lease is a standard form lease with additional clauses included which provide for the management and improvement of the environmental performance of a building by both owner and occupier(s). 

Net Zero Energy is a concept defined by the use of energy conservation, energy efficiency, and on-site renewable generation to account for 100% of a targeted building’s or a community’s energy usage.

Renewables Gaining Favor

As sustainability becomes a corporate priority, more occupiers are now signing leases that factor in sourcing energy from renewables, reducing carbon emissions from building operations and decreasing waste and water use.

Such a document is legally binding and its provisions remain in place for the duration of the term.

Globally, some 34% of occupiers already have green lease clauses, while a further 40% plan to sign them by 2025, according to a JLL report. 

Investors, too, are taking action, with 42% now having green lease clauses in place and an additional 37% looking to adopt them by 2025.

The Institute for Market Transformation in the US estimates that green leases can help reduce utility bills by up to 22%, or around 50 cents per square foot in US office buildings alone.

If all leased office buildings had green leases, the market could reap over $3 billion in annual cost savings, the IMT estimates.

“More clients are now aware that green leases can unlock both short- and long-term benefits,” says Quentin Drewell, sustainability director in JLL’s Upstream Sustainability Services. “In the past green leases were about balancing the financial incentives for sustainability improvements between the building owner and the tenant.

“While this is still important, conversations are now turning to mutual value creation.”

Green Leases Popular in Industrial, Office and Data Center Segment

In the US offices, industrial buildings and data centers are increasingly turning to green leases. The country’s Green Lease Leaders recognize the likes of AEW Capital Management, GITS Partners, Prologis and Tishman Speyer.

The challenge is now converting growing interest into tangible action among both landlords and tenants.

“Closer collaboration and partnerships will be key to meet net zero carbon targets within real estate,” Richa Walia, EMEA corporate research and strategy director at JLL, said in the report. “Green leases have a way to go to become mainstream in the market but as more companies roll out their sustainability plans, we’ll see broader adoption.”