JLL says electricity costs are pulling energy efficiency into CRE underwriting

Electricity in major markets is 11% to 91% more expensive in real terms than it was in 2020, according to JLL, widening the operating gap between efficient and inefficient buildings.

Higher electricity prices are pulling energy performance into commercial real estate underwriting, IREI reports, while tighter local regulations and aging building systems raise the financial cost of poor building performance.

"Energy costs, alongside tightening local regulations and aging building systems, are converging to reframe efficiency as a critical operating issue and a fundamental resilience play for real estate," said Josephine Tucker, Americas head of energy advisory and sustainability at JLL, in an IREI interview.

Energy performance is moving from a sustainability checklist item to a core component of location decisions and is even influencing NOI projections, Tucker said. If tenants weigh efficiency when choosing space, the penalty for a lagging building lands in leasing and rents as well as in utility bills.

Energy costs alone are not reshaping investor sentiment, IREI reports, but form part of a broader set of pressures on owners. Efficiency spending has historically struggled to compete for capital because returns looked modest and slow to arrive, a calculation that rising power prices are beginning to change.