It’s Time for Building Performance Standards Says JLL

With concerns about climate change, investor responses, and regulation of how commercial real estate properties handle carbon emissions, JLL suggests the CRE industry take building performance standards, or BPS, seriously.

These are standards that state and local governments globally are using to address climate change. A BPS governs building energy use and emissions reductions. According to the U.N., buildings account for almost 40% of carbon emissions, with the number typically approaching 60% in cities. That includes the energy used to create the materials that go into building construction, although JLL notes that operational, not construction, activities represent a greater proportion of whole life-cycle emissions.

Currently, such standards cover 25% of all buildings in the U.S. Some other parts of the world are more advanced in their efforts. Many cities are aiming to achieve net-zero carbon goals by 2050. Local governments are using building performance standards to better control operational emissions by setting emission or energy usage limits, typically by property type.

JLL has listed nine cities — Seattle, WA; Chula Vista, CA; Denver, CO; St. Louis, MO; Montgomery County, MD; Washington, DC; New York City, NY; Cambridge, MA; and Boston, MA — that have already passed BPS requirements. Furthermore, there were 30 more cities developing standards. California as a state has developed BPS requirements and Washington, Oregon, and Colorado are in the process of doing so.

The EU is further along, having passed legislation at the end of 2023 that will require local jurisdictions to develop energy standards that will result in retrofitting 26% of worst-performing buildings by 2033.

In the U.S., compliance will become financially necessary. JLL mentioned three different examples. New York’s Local Law 97 requires building owners to meet emissions caps or face penalties of $268 per ton of emissions over the limits. Boston’s BERDO BDS, buildings of more than 35,000 square feet that fail emission standards will face daily penalties of $1,000 starting in 2025. Buildings between 20,000 and 34,999 square feet would face a $300 per day penalty. Seattle’s BEPS has a non-compliance penalty of $2.50 per square foot.

In these three metros collectively, multifamily buildings are the ones most exposed to penalties, with nine times as many compared to office buildings.

JLL said the most effective strategy for building owners is to start moving toward compliance now in what will be a complex set of five steps: determine improvement targets, measure performance, audit performance, document compliance, and ensure long-term compliance and success.