In early December 2024, REALPAC released a significant report titled Decarbonizing Canada’s Commercial Buildings: The Owner & Investor Perspective. This comprehensive document explores the barriers to reducing carbon emissions in the commercial real estate sector and outlines ten actionable recommendations to address these challenges. With the building sector responsible for a substantial portion of Canada’s emissions, the report emphasizes the importance of swift and coordinated action to create a low-carbon future.
The Role of Commercial Real Estate in Canada’s Economy
Canada’s commercial real estate sector is a cornerstone of the national economy. Contributing $148 billion annually to GDP and creating over one million jobs, the sector also manages approximately $1 trillion in assets. However, the environmental footprint of this industry is considerable. Buildings are responsible for 18% of Canada’s total greenhouse gas emissions, with the majority stemming from space and water heating powered by natural gas.
Despite some progress such as a 1.3% reduction in building sector emissions since 2005, decarbonization efforts are lagging. Many of the nation’s 550,000 commercial and institutional buildings remain reliant on outdated systems and face barriers that hinder more sustainable practices.
Barriers to Decarbonization
The report identifies various obstacles preventing greater progress. These issues are interconnected, creating a complex web of challenges for property owners and investors alike.
One major difficulty lies in the financial aspect of decarbonization. Without adequate incentives or financing options, retrofitting buildings to meet low- or net-zero carbon standards often appears less financially viable than maintaining the status quo. Moreover, current valuation models do not sufficiently recognize the long-term benefits and reduced risks associated with decarbonized assets. This lack of recognition diminishes the appeal of green investments.
Access to low-carbon energy also presents significant hurdles. In many regions, building owners cannot choose their electricity provider or generate clean energy on-site. Furthermore, Canada’s electrical grid is not always equipped to support widespread building decarbonization, particularly when competing demands from industries such as electric vehicle charging and digital technologies further strain capacity.
Importance of Strong Policy and Market Incentives
The report highlights the need for robust policies to address the financial, technical, and regulatory barriers to decarbonization. A business-as-usual approach often yields the best returns under current conditions, making it essential to create a business case that supports long-term investments in low-carbon solutions.
Tax relief, preferential financing, and incentives for energy-efficient technologies are among the proposed measures to encourage change. Recognizing decarbonized buildings’ value through updated appraisal standards could also drive greater investment. By aligning market incentives with environmental goals, the industry can more effectively address climate risks while remaining economically competitive.
Recommendations
To overcome these challenges, the report offers ten targeted recommendations, which aim to provide practical solutions while fostering collaboration among government, industry, and financial institutions.
- Increase Incentives and Knowledge Sharing: Promote the adoption of advanced decarbonization technologies (e.g., heat recovery chillers, high-performance building systems) through enhanced incentives and information-sharing initiatives.
- Provide Long-Term Low Fixed-Rate Debt Financing: Offer accessible financing options to support low-carbon construction and retrofitting, with financial institutions introducing specialized products for these investments.
- Provide Tax Relief and Incentives: Implement tax benefits and streamlined processes for low- and net-zero-carbon buildings to reduce financial and administrative burdens.
- Recognize Decarbonization in Valuations: Update valuation standards to reflect the lower regulatory and market risks associated with low-carbon properties, encouraging investment in sustainable assets.
- Expand Electricity Capacity and Decarbonization: Increase the capacity of electricity systems while further decarbonizing power generation to support building energy transitions.
- Enable Choice in Electricity Procurement: Allow building owners access to green power through mechanisms like virtual power purchase agreements and encourage on-site renewable energy generation.
- Enhance Leadership, Knowledge, and Skills: Strengthen the industry’s expertise in decarbonization through training programs and sharing best practices, fostering innovation in achieving carbon reduction targets.
- Provide Stronger Incentives for Decarbonization: Align economic policies to drive investments in decarbonization by emphasizing its long-term cost and risk benefits.
- Ensure Access to Whole Building Data: Legislate the sharing of comprehensive energy data by utilities to enable building owners to accurately measure and manage emissions.
- Harmonize Standards Across Canada: Streamline decarbonization efforts by aligning national, provincial, and municipal standards, ensuring a consistent approach to building performance and labelling.
Collaboration and Knowledge Sharing
Achieving meaningful progress will require coordinated efforts across multiple sectors. Governments, utility providers, and industry leaders must work together to establish harmonized standards and streamline processes. The report points to the need for clear, consistent regulations and improved access to whole-building energy data to support decision-making.
Knowledge sharing within the real estate community is also essential. By exchanging best practices, developing training programs, and increasing awareness of decarbonization technologies, stakeholders can build the expertise needed to address these complex challenges.
Long-Term Benefits
While decarbonization may involve upfront costs and logistical difficulties, it offers significant long-term advantages. Low-carbon buildings face reduced risks of regulatory penalties, obsolescence, and market devaluation, making them more resilient in a rapidly changing economic and environmental landscape.
Conversely, properties that fail to adapt may encounter rising operational costs, stricter regulatory requirements, and declining tenant demand. For those managing extensive portfolios, the risks of inaction are particularly pronounced, underscoring the importance of proactive measures.
