As the U.S. economy struggles to find balance in the midst of a pandemic, the business world is slowly reawakening. It may be too early to say how far-reaching the economic disruptions of this crisis will be, but for the commercial real estate (CRE) market, one thing is certain: Change is already underway.
As employees and companies get a taste for the new work-from-home culture, CRE may begin to experience a restructuring. The good news is, there is opportunity in this shift. While the pressure to return to business-as-usual can be monumental, this is not a time for throwback thinking. Here’s how Paul Simpson, CEO of Carbon Disclosure Project, framed the challenge in a recent article:
We must reinvent and renew our economy into one that is more resilient, inclusive, sustainable and zero-carbon. If we prop up the old system, against the backdrop of increasing and impending climate change hazards, we risk locking in a pathway of greater risk.
The year 2020 is turning into a watershed year in many ways, but for the CRE industry it’s particularly challenging. A new survey by Global Workforce Analytics predicts an increase of 25-30% in work-from-home employment in 2021. In the short term, this may not translate into reduced office space as companies comply with CDC social distancing guidelines. Longer term, many CRE owners will have to figure out new ways to utilize and manage their spaces now that they could possibly see fewer occupants. Companies who take a forward-thinking approach to managing their portfolios will be more resilient in the end.
In this bold new world, CRE owners and investors have a choice: Batten down the hatches and hope for a return to “normal,” or reassess their portfolios and adapt to a new reality. Those who choose the latter path have an opportunity to optimize the use of their properties, while increasing profitability and supporting the move to a more resilient clean energy economy.
Where Disruption Occurs, Opportunity Awaits
As any economist knows, disruptions can present great opportunities. Already the industrial market is experiencing a boon due to the pandemic’s acceleration of ecommerce.
Even before the pandemic, the energy industry was in the midst of a $5 trillion transition as ownership of the distribution and transmission network has been changing hands from centralized to distributed power. After years of cost reduction, renewable energy is finally competitive with natural gas. Even as oil prices have declined during the pandemic, renewable energy sources that produce electricity have continued to grow, according to the International Renewable Energy Agency, and the need for energy storage has become even more apparent.
Turning Properties Into Renewable Assets
Commercial and industrial real estate has been at the forefront of the energy efficiency movement. The industry has taken a hard look at how inefficient buildings can be and implemented sophisticated energy analytics to squeeze as much value as possible out of existing building stock. New buildings are being designed to LEED and WELL-Building standards that increase the use of daylighting, automated lighting controls and natural spaces.
Now, with the improved business case of renewables like solar and storage, CRE owners of all kinds can take part in the distributed generation of energy, which can vastly increase the value of entire portfolios.
Energy That Pays You
Integrating onsite solar and energy storage assets on your roof, grounds or parking lot improves property resiliency and adds to your bottom line while enhancing your brand’s reputation for sustainability. But managing and optimizing renewable energy systems is not a core competency for most real estate developers. Fortunately, there are many approaches to building onsite solar. Savvy real estate investors are learning they can be part of the movement to build back a better economy by turning their rooftops, parking lots and underutilized land into distributed power plants, with no upfront costs and no long-term maintenance concerns.
With a system owned and operated by a highly qualified energy partner, commercial real estate owners receive regular lease payments (rent) which they can use to cover expenses or property improvements, such as the cost of a new roof. Incremental revenue from these systems can even help fund strategic new property acquisitions, further increasing profitability while supporting corporate ESG objectives.
Catalyze’s Energy-as-a-Tenant (EaaT) solution then makes it easy and profitable for commercial and industrial real estate owners to integrate solar or energy storage technology into new or existing assets, without the headaches or burden of investment or ownership.
In the current environment, those who are working to thrive, not merely survive, will challenge old assumptions. The CRE industry has an unprecedented opportunity to catalyze their competitive advantage with onsite renewable energy — and be part of an economic recovery that is better, stronger, and more resilient than ever before.