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 others adopt carbon-reduction targets, the challenge is to make those buildings greener.
In the United States, where regulation is lighter, developers lag their counterparts in Europe in constructing sustainable warehouses and distribution centers, with buildings that are still overly reliant on fossil fuels. Another reason for the disparity, experts say, are leases that may discourage spending on building improvements that could rein in energy use.
But American 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 rooftops 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 ambitious decarbonization goals, progress is expected to accelerate.
“It’s the start of a wave,” said Brian M. 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. Buildings are responsible for about 40 percent of the greenhouse gases that are warming the planet, with carbon emissions coming from both construction and operations.
Warehouses and distribution centers — which typically 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 Christopher Babatope, an associate director for real estate at Oxford Economics, a forecasting company in London.
A new generation of net-zero warehouses have begun to open across Europe, where building codes and environmental regulations are stricter and more uniform than they are in the United States.
But the bigger issue is that many of the existing warehouses were not built to the highest standards. More than 70 percent of industrial space in the United States was built before the 21st century, and a 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 systems, 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 investments that lower energy use, it benefits when operating costs go down. But with warehouses, owners typically rent to a single tenant under an arrangement known as a triple-net lease, which puts the occupant, not the owner, in charge of maintenance and operations.