Green Building Requirements Are Expanding: Everything You Need to Know

In the aftermath of the pandemic, commercial real estate owners, occupiers, and developers adopted aggressive environmental targets to combat climate change and reduce the carbon footprint of the built world, which accounts for 40% of global carbon emissions. In the years following, sustainability efforts have lost momentum. Although some companies have held onto their environmental targets, others have rolled back internal efforts. However, the reality is that it isn’t up to commercial real estate companies to determine green building standards anymore. Federal, state, and even local governments are setting high standards for the built world to report energy consumption and meet carbon benchmarks. Owners and developers have no choice but to comply with new standards for green building practices to satisfy current and emerging requirements. 

Here’s everything you need to know about the expansion of green building requirements and strategies your team can use to meet new standards: 

Inside Green Regulations

Green building standards are still an emerging concept in the US, where very few local governments have taken steps to adopt and implement green building policy, but in the last few years, that has started to change. Statewide adoption of green building practices is gaining momentum. According to research from CBRE, governments are taking two routes to push sustainability. The first is to encourage better reporting and transparency of sustainable practices, while the other is the implementation of Building Performance Standards, a program from the US Office of Energy Efficiency and Renewable Energy that sets building performance requirements. 

So far, more than 60 local governments have adopted one of these two policies, and four states—Maryland, Oregon, Colorado and Washington—and 13 cities have implemented Building Performance Standards. Already, this accounts for 25% of the total US building stock. These standards and reporting requirements are combined with green local building codes to create an end-to-end sustainable asset. 

These two green building frameworks will help to standardize green building practices nationwide—which is good news for owners and developers. Many more states and cities have enacted some form of green building practices. California may be at the top of the list for green building regulations, adopting practices like the International Green Construction Code, along with a dozen other states, and Buy Clean requirements for new construction. However, the state has yet to adopt Building Performance Standards formally. Virginia, New Jersey and Pennsylvania are also often considered leaders in sustainable building practices, although, like California, none have yet adopted Building Performance Standards. 

This fragmented approach to green policy, much of which changes from state to state and city to city, can create challenges for owners and operators to meet sustainable standards. Building Performance Standards aims to create a more collaborative approach to green building efforts and push real, meaningful progress—and governments are getting on board quickly. By 2026, 40 US cities will have implemented Building Performance Standards, and many of these cities have also implemented net-zero requirements by 2050 or earlier. The shift toward Building Performance Standards is only gaining momentum, and developers and owners need to begin preparing today. 

The High Cost of Staying Brown 

Building green properties offers a lot of benefits for commercial real estate owners and developers. There is ample research to show green and sustainably built properties have higher values, better occupancy rates, lower attrition,  and above-market rental income. These benefits have been dangled as a carrot for developers to electively follow green guidelines. Now, with Building Performance Standards, governments are taking a sterner approach by implementing penalties for owners and developers who fail to meet guidelines. Each local jurisdiction has implemented its own penalties, and they can vary significantly from city to city. Whether the penalty is heavy or minor, the intention is to push for the adoption of sustainable practices. As CBRE explains, “It’s important to note that these penalties are intended to encourage building decarbonization rather than penalize building owners for failing to reduce the building’s energy consumption and carbon footprint.”

Most local jurisdictions have annual fines based on a per-day basis for noncompliance, while others have annual fines based on energy consumption over 12 months. Denver, Boston, and New York City have also imposed additional financial penalties for properties that fail to meet standards.      

An Opportunity for Developers to Meet New Demand

While no developer is excited to adopt new regulatory requirements, green building practices are creating an opportunity for new construction. Governments are adopting green policies to combat climate change and reduce carbon emissions, but there is also significant user demand for green buildings. Currently, that demand is outstripping supply. According to research from JLL, the world will have a 70% shortage in low-carbon office buildings by 2030 if demand keeps its current pace. The report also predicts that decarbonization legislation, like Building Performance Standards, will continue to fuel demand, adding to the shortage in supply. The demand is only underscored by corporate commitments to reduce carbon emissions, which include occupying low-emission buildings. 

An article from the World Economic Forum explains, “The supply-demand gap research for commercial offices is compelling and demonstrates the appetite from occupiers for space that aligns with their overall corporate sustainability goals.” Developers have an opportunity to play a role in creating low-carbon properties that meet regulatory guidelines and user demand. 

This is a time of rapid change for the commercial real estate industry, from advancements in the way that properties are built and operated to changing tenant expectations to new technology tools. Some of these changes will be difficult to accommodate—but others are helping developers better meet investment targets and financial goals. Modern real estate development software like Northspyre is doing just that. Through predictive analytics, AI, and automation, the software helps developers streamline project management, track budgets and expenses, and boost transparency and communication among stakeholders. Developers using Northspyre are reducing overages, creating leaner budgets and staying on or ahead of schedule, all of which show up in the bottom line—even on projects where developers have to meet strict regulatory guidelines. Technology is a lifeline for developers to meet new market challenges without sacrificing returns, and that is only helping support developers meet regulatory changes. 

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