by guest: Guy Grainger, Global Head of Sustainability - JLL
When it comes to approaches to building decarbonisation, Europe and America are on different tracks. The US is increasingly focused on measurable energy performance, whereas Europe still prioritises reporting frameworks or benchmarks.
Market evidence is starting to show the US approach of performance over paperwork is more effective in decarbonising buildings at pace – and at scale. This has some valuable lessons for Europe.
Lesson 1: Simplify metrics for immediate action
The American focus on Energy Use Intensity (EUI) as the primary performance indicator provides clarity that drives decision-making. While Europe's comprehensive reporting frameworks create valuable market infrastructure, the US demonstrates how simplified metrics accelerate capital deployment. Property owners, tenants, and authorities align around a single, measurable outcome rather than navigating complex benchmarking systems.
European markets can maintain their sophisticated measurement capabilities while adopting clearer performance hierarchies. This doesn't require abandoning existing frameworks but rather establishing primary metrics that guide immediate investment decisions.
Lesson 2: Prioritise operational outcomes over compliance processes
American companies focus on actual building performance data rather than theoretical pathways or survey responses. This operational emphasis creates accountability and drives continuous improvement. European companies have invested heavily in auditing and baseline establishment over the past three years, creating detailed asset knowledge that now requires activation through targeted interventions.
The comprehensive preparation phase positions European markets well for rapid deployment once execution priorities shift from compliance to performance optimisation.
Lesson 3: Leverage policy momentum for market coordination
American cities operate as policy laboratories, implementing aggressive local regulations without waiting for national consensus. New York City's carbon tax on buildings and California's emissions standards create immediate market pressure and demonstrate practical implementation pathways. This bottom-up approach enables rapid testing, refinement, and scaling of effective policies.
European markets typically wait for national or EU-level coordination before implementing major sustainability measures. While this ensures comprehensive coverage, it can delay innovation and reduce policy agility. The introduction of the European Buildings Directive (EPBD) - a minimum energy performance standard for buildings like some US States - could be a game-changer for the real estate market, with a significant impact on long-term asset values.
We estimate the directive could increase the stranding risk across pan-European portfolios to 30-40% by 2050, up around 20% on today’s existing national regulations such as the UK’s Minimum Energy Efficiency Standards (MEES) and France’s Décret Tertiare.
This is an obsolescence market cycle
Both regions, however, face the same fundamental challenge. In Europe, as in the US, many buildings are past their prime. Capital investments into upgrading and retrofitting real estate are down in recent years as investors struggle in a cash-strained operating environment. At the same time, the number of corporates wanting energy-smart office and industrial space has soared. Dealing with obsolescence will drive added value – the evidence is becoming clear.
Today, the gap between the supply of, and demand for, sustainable buildings has never been greater – and it’s growing. Our research predicts demand could be 70% unmet by 2030, with cities like London, Paris, and New York facing shortages of 35% to 65%. Other real estate classes also face large supply gaps.
At the same time, energy concerns are rocketing. Soaring demand from burgeoning AI, data centres and advanced manufacturing is not putting new demands on ageing energy infrastructure. Large-scale blackouts in Spain and Portugal, and localised disruption at Heathrow airport in London, show the need for better energy resilience to avoid widespread costly damage to operations. Amazon Web Services (AWS) recently suffered an outage – this is serious.
Together these market factors are reshaping what premium space looks like. Energy efficiency, resilience and carbon performance are increasingly essential selection criteria alongside traditional amenities, and many tenants are willing to pay more for buildings that tick the boxes on long-term performance and sustainability credentials.
For buildings that don’t now make the grade, the answer lies in retrofits. Across the global commercial real estate industry, retrofit rates must accelerate more than fivefold to meet climate targets and tenant demand.
Forward-thinking building owners and investors who were quick off the mark to adapt their buildings are already reaping the financial rewards. But the window of opportunity hasn’t shut yet.
Our analysis across 30 markets shows that 1.5 billion square feet (~140 million square meters), or 70% of potentially obsolete stock, sits in markets with a strong sustainability value-add. London and Paris take the two top spots followed by New York. Stockholm, Berlin, Hamburg, Milan and Frankfurt also have strong potential for investors looking to create long-term value.
What’s needed now is smart, long-term thinking around how buildings can not only be central to cutting emissions but to solving the built environment’s growing energy problem. They need to transform from passive energy consumers into active energy resources that generate and store power, working collaboratively with utility grids to manage peak flows, improve operational resilience and support a new low-carbon economy.
Once again, there are financial benefits for fast-moving investors. Our research suggests the shift to buildings as decentralised, distributed energy hubs could unlock new revenue streams of 25%-50% through smart technologies, on-site generation and energy-as-a-service models, all while reducing tenant operating costs.
Moving Europe from intent to action
Getting Europe’s buildings up to scratch won’t be cheap. JLL puts the cost of retrofitting between 3 to 12% of the asset's value. Yet the costs of inaction through missed opportunity in an increasingly competitive market and tightening regulation can exceed intervention costs.
In the face of such growing risks, the business case for taking timely action to make buildings more sustainable and energy smart is only strengthening.
Ultimately, smart investors are now making investment decisions to address the huge demand for low carbon stock in a time of short supply. This means creating one type of product: energy-smart buildings with rich, live, data tracking. How many do you have in your portfolio?
GUY GRAINGER
JLL, Global Head of Sustainability