Amid the demand for warehouses there’s a try to make them greener
Warehouses and distribution centers, decidedly unsexy buildings, became hot in the coronavirus pandemic as online shopping accelerated the rise in e-commerce and set off a frenzy of buying and building the boxy, low-rise structures, pushing up rents and increasing returns for investors.
Now, as investors and oth- ers adopt carbon-reduc- tion targets, the challenge is to make those buildings greener.
In the United States, where regulation is lighter, developers lag behind their coun- terparts in Europe in con- structing sustainable ware- houses and distribution centers, with buildings that are still overly reliant on fossil fuels. Another reason for the disparity, experts say, are leases that may discour- age spending on building improvements that could rein in energy use.
But U.S. companies are beginning to take steps to make their warehouses more energy-efficient, including upgrading building materials. And some warehouse owners are even turning the roof- tops into solar farms that can power the building’s operations and, in many cases, lower utility costs for nearby homeowners and businesses.
As more community solar programs roll out and local governments set more ambi- tious decarbonization goals, progress is expected to accelerate.
“It’s the start of a wave,” said Brian LaMont, senior vice president of capital and construction management at STAG Industrial, a Boston real estate investment trust with a large warehouse portfolio.
The need for change is urgent, experts say. Build- ings are responsible for about 40% of the greenhouse gases that are warming the planet, with carbon emissions coming from both construction and operations.
Warehouses and distribution centers — which typi- cally have big, open interiors devoted to storage with a small amount of square footage dedicated to office functions — would appear to be easier to make greener than other real estate. Many of them take only a modest amount of energy to run, compared with more densely occupied structures such as office buildings or hotels.
“The path for decarbonizing is shallower,” said Chris- topher Babatope, an associ- ate director for real estate at Oxford Economics, a fore- casting company in London.
A new generation of netzero warehouses have begun to open across Europe, where building codes and environmental regulations are stricter and more uni- form than they are in the United States.
But the bigger issue is that many of the existing ware- houses were not built to the highest standards. More than 70% of industrial space in the United States was built before the 21st century, and one-third of the inventory is more than 50 years old, according to a report by the real estate company Newmark.
Making such buildings greener means ensuring they are well insulated, swapping out antiquated lighting for LEDs and upgrading HVAC
ems, among other things. Often, lease arrangements discourage such investments, experts say. In office buildings, a landlord typically rents to multiple tenants and runs building operations; if the owner makes invest- ments that lower energy use, it benefits when operating costs go down. But with ware- houses, owners typically rent to a single tenant under an arrangement known as a tri- ple-net lease, which puts the occupant, not the owner, in charge of maintenance and operations.
The owner “is less han d s-on,” said Breana Wheeler, director of U.S. operations for BRE, a center of building science in Britain that administers a global sustainability certifi- cation program, which some warehouse owners follow.
The result is that neither tenant nor landlord is partic- ularly motivated to invest in a building; the tenant does not want to spend money on another company’s property, and the owner is reluctant because energy savings will mostly benefit the tenant.
So-called green leases have emerged over the past couple of years to begin to address the situation. These leases encourage landlords and tenants to share information on things like energy use in a building, sometimes lead- ing to collaboration on retrofitting projects.
And improvements are quickly becoming a necessity, experts say, given that building performance stan- dards, including those man- dating carbon reductions, are gaining traction, with the threat of fines for owners that do not comply. Plus, a greener warehouse can be more attractive to compa- nies looking to meet their environmental goals.
In situations where energy costs are high and a ware- house’s roof is strong, some owners and tenants have installed solar arrays to power building operations. More states are requiring that warehouses be built with “solar-ready” roofs that can accommodate photovoltaic panels from the get-go.
But a solar installation sufficient to run a warehouse might take up only a small fraction of what is often a vast, unobstructed expanse of space.
That is where community solar comes in. So far, 21 states plus the District of Columbia have community solar programs, most of them created to benefit low- and moderate-income utility customers.
Under the programs, a solar developer rents a ware- house roof from the build- ing owner and installs and runs the photovoltaic system, piggybacking on the landlord’s asset. Power from the rooftop system feeds into the local electric grid, making it cleaner and lowering the bills of customers who subscribe to the community solar program.
For example, Solar Landscape, a community solar developer, installed photovoltaic panels on four warehouses owned by Duke Realty in the northern part of New Jersey and then signed up subscribers. One of them was Esleydy Cabada, a preschool teacher and mother of three in Avenel, New Jersey, who said her monthly electric costs had dropped after she joined the com- munity solar program in her area.
Cabada said there was no fee to join the program. She now gets two monthly bills — one from her utility company, Public Service Electric & Gas, and one from Solar Landscape — but the total cost is less than what she used to pay.