Commercial real estate developers are voraciously pursuing sustainable construction practices. From publishing aggressive ESG targets to building to green certifications, there have been a number of ways that developers can reduce the carbon footprint of a commercial property. Now, innovative developers are going one step further to ensure the carbon neutrality—or even negativity—of a new building with all-electric commercial real estate properties. In this new design, energy usage at a property relies on 100% electricity rather than gas or other energy sources. Similar to all-electric cars, all-electric buildings are revolutionizing energy consumption in commercial real estate, which is historically one of the largest global consumers of energy.
The trend is gaining momentum. Already, the first all-electric buildings have come to the US market in California and New York. This year, the nation’s first all-electric hospital was also announced in Irvine, California. But, as new all-electric properties arrive, developers have an abundance of questions.
Here, we’ll take a look inside the new sustainability trend, from the benefits to the challenges and the future of all-electric projects.
What Is an All-Electric Building?
All-electric buildings use 100% electricity to power the building’s mechanical systems. Typically, this means converting HVAC, heating systems and cooking systems from natural gas to electric-powered sources. Similar to an all-electric vehicle, all-electric buildings utilize electricity as the sole source of energy, and that electricity can come from a variety of sources, including renewable energy sources, like solar power. Electrifying buildings paves the way for building owners to rely on totally renewable energy sources and achieve a carbon neutral building stock. When paired with other sustainable development practices, like LED lighting, recycled water for landscaping and energy-efficient window glass to reduce total energy usage, there is a significant impact on the building’s total footprint.
Some estimates show that electric building functions use significantly less energy that their natural gas counterparts. Electric heat pumps, for example, are four times more efficient. They are also safer and improve the air quality indoors. For bottom line-focused developers, electric buildings are an opportunity to reduce total energy costs. In fact, research from the US Department of Energy found that energy efficient buildings increase asset value by 11% to 26% and decrease operating costs 12% to 17%. Further, CBRE research shows that energy efficiency generates more user demand and results in rental premiums of 2% to 17%. Overall, going electric can prove to be a win-win for developers both looking to achieve sustainability goals and maximize value.
Is All-Electric Development Possible?
From a development perspective, making the transition to an all-electric system is simple. When Alloy Development delivered New York’s first all-electric building earlier this year—a soaring 44-story residential skyscraper in Brooklyn—the developer’s CEO Jared Della Valle told the New York Times, “It’s honestly not that complicated. It’s a conceptual leap, but it’s not a technological leap.” However, achieving an all-electric building stock at scale can, in fact be complicated. Developers and other city stakeholders have concerns about grid capacity and reliability issues. This is particularly true in markets prone natural disaster, like wild fires in the West or hurricanes in the Southeast, which can strain power grids and expose commercial buildings to power failures. Some developers have opted for fossil-fuel powered back-up systems, like diesel generators, to maintain core building functions should the grid fail.
In addition, while an all-electric grid allows a property to operate on completely renewable energy, the city’s grid must be upgraded to connect to renewable energy sources as well to achieve the decarbonization benefits. In this case, the building will also need to provide its own renewable power sources, through solar power panels, for example. Cities need to upgrade power grids to connect to renewable energy sources to achieve the complete capability of electrification and allow developers to create electrified buildings that simply connect to the current power grid.
All-Electric Is the Future
Today, innovative developers are pioneering all-electric developments, working through the early challenges and paving the way for other developers—but soon all-electric development won’t be an option; it will be a mandate. In New York State, developers will be required to use electric heating and cooling systems on new developments starting in 2026, and a similar mandate will go into effect in California in 2030. Other states and local municipalities are adopting similar electrified building codes to push developers toward decarbonization and sustainable building practices. These regulations are coming quickly, and developers should understand how to transition standard building systems to electric sources to ensure compliance. Those who aren’t prepared will risk missing development opportunities or fail to meet new building codes—increasing both the time and cost of new development.
Commercial real estate development standards are changing—in more ways than one. Forward thinking developers are thinking about the future of real estate development and quickly evolving to the new normal. In addition to sustainable building practices, forward-looking developers are also adopting AI, predictive analytics and automation to drive efficiencies in project management. The advancement in modern real estate development software, like the platform provided by Northspyre, are also helping developers unlock valuable efficiencies in a project, resulting lower budget overages and improved development timelines. It’s a powerful tool that can generate better returns and more predictable outcomes on your development. Developers aimed at modernizing new construction—from sustainability to new technology—will see the benefits in their bottom line.
