Can Adaptive Reuse Conversion Projects Become Net Zero Buildings?

The conversation surrounding environmental accountability in commercial real estate gets louder by the day.

With groundbreaking proposals from the Securities and Exchange Commission (SEC) and the U.S. Treasury Department, mandating public companies to divulge their greenhouse gas emissions and climate risk data, the corporate realm faces intensified scrutiny.

Because, according to the Rocky Mountain Institute, commercial buildings are responsible for nearly 40 percent of global carbon emissions annually, so they are coming under the gun now the country turns towards ESG.

In response to the pressure, recent initiatives such as Local Law 97 have emerged, aiming to tackle environmental challenges head-on. Moreover, in a joint effort, the White House and the U.S. Department of Energy (DOE) unveiled a draft national standard for zero-emission buildings.

This new guideline aims to establish a unified framework, bolstering the industry's strides towards zero emissions. It mandates stringent criteria focusing on operational efficiency, requiring buildings to achieve high levels of energy efficiency, eliminate on-site emissions from energy usage, and exclusively rely on clean energy sources.

With the White House's plan to establish a comprehensive framework for restrictions, there is an expectation that guidelines will be more sweeping and rigorously enforced. 

However, as the movement for greener buildings gains momentum, the spotlight now turns to achieving net zero emissions across the entire building lifecycle. This necessitates a significant upsurge in recycling and repurposing existing building materials, marking a crucial step towards sustainable construction practices. But really, how realistic is the expectation for net-zero commercial construction? 

Let's explore this trend.

Achieving Carbon Neutrality in Construction

As the drive for environmentally friendly buildings progresses, the next phase involves transitioning to completely net-zero processes, and that means a lot more recycling of existing building materials.

Because experts have found that, out of the 40% of global emissions generated by commercial buildings, a quarter of that is coming from embodied carbon.

Embodied carbon refers to the total amount of greenhouse gas emissions associated with the production, transportation, and assembly of building materials used in construction.

It encompasses the carbon dioxide and other greenhouse gases emitted throughout the entire lifecycle of these materials, from their extraction or manufacturing stage to their eventual disposal or recycling. Essentially, embodied carbon represents the environmental impact of the materials themselves before they are even incorporated into a building.

So as net zero becomes the standard, the solution once again at the center of the CRE conversation is adaptive reuse.

Adaptive Reuse and Carbon Neutrality

With sky-high vacancy rates and pressing ESG concerns mounting, adaptive reuse has become the go-to scapegoat for achieving a more stable office market.

In the context of reducing embodied carbon, adaptive reuse projects have had success with introducing some of the following techniques:

• Utilizing electric vehicles to ship materials
• Using ready-mix concrete
• Choosing finish materials that have a low embodied carbon footprint
• Using insulation that has low or no embodied carbon

But at the end of the day, the most efficient way to achieve carbon-neutral construction is by upcycling most of the material.

Perhaps the most high-profile example of this in action is the Quay Quarter Tower in Australia, the “world’s first upcycled skyscraper.”

Rather than demolish the original building, the developer was able to reuse 60% of the core. Saving two-thirds of the tower, cut 8,000 tons of greenhouse gas emissions which would have been released normally. This equates to about two years’ worth of operational emissions, according to Propmodo. 

In the U.S., leaders at JPMorgan have unveiled plans for their new headquarters at 270 Park Avenue, boasting net zero operational emissions and an all-electric setup.

What's intriguing about this adaptive reuse project is its sustainable approach: a whopping 97 percent of the materials from the demolition of the previous building will be repurposed for its construction.

The Costs of Office to Residential Conversions

While it’s all well and good that adaptive reuse projects like these are making headlines, we must examine the feasibility of their widespread implementation.

We are not in a perfect world where environmental cost is the only gauge of a building’s success in construction. They have to be profitable.  And there’s a reason why the banking giant J.P. Morgan is footing the bill for such a behemoth construction job.

Most often, the context in which we hear about adaptive reuse is in relation to transforming largely empty office buildings into residences. Vacant office buildings are draining the value of the land they sit on, but because of the major cost involved in conversions, most are not candidates for practical and profitable reuse of the shell.

First, converting office spaces into residential units requires significant adjustments to accommodate plumbing, sewage systems, water heaters, and laundry facilities. This entails ripping up existing concrete structures and reconfiguring them to meet residential needs.

The transition also necessitates rewiring for residential electrical needs and adapting heating, ventilation, and air conditioning (HVAC) systems to residential standards.

Such transformations are further complicated by the inherent rigidity of office layouts, which must be reshaped to fit the mold of living spaces. Also, post-war buildings intended for air-conditioning use often have sealed windows that don’t open, which is a big no-no for apartments.

Not to mention that regulatory hurdles, including zoning constraints and compliance with fire regulations designed for commercial spaces, further add to the complexity.

The cost of working with the shell, which has been likened to building a ship in a bottle is massive. Read more about The Costly Complexities of Office Conversions. 

And on top of the initial cost, landlords find themselves shouldering the weight of operating expenses, from ongoing maintenance to hefty insurance premiums.

In most cases, owners could gain more from tearing down the building, rezoning the land for residential, and building from the ground up. Especially because, while these expansive retrofits get a lot of attention, they’re not the majority. Many office buildings are small-scale (less than 30,000 sq ft), which limits their appeal for conversion into residential units.

Additionally, converting office spaces to housing often results in units priced at market rates, making them less attractive to potential residents.

The Future of Adaptive Reuse 

The conversion of office spaces into residential units remains financially prohibitive, posing a significant barrier to widespread adoption.

However, promising initiatives such as Commercial Property-Assessed Clean Energy (C-PACE) Financing and the rise of "Green Banks" are beginning to provide crucial financial support for environmental retrofits. These programs offer innovative financing options that help offset the costs of implementing sustainable practices, such as energy-efficient upgrades and renewable energy installations. Additionally, the Inflation Reduction Act represents a significant step forward, allocating over $50 billion to support green technologies aimed at reducing energy costs and promoting renewable energy sources.

On top of this, cities like Manhattan are removing other red-tape that complicates conversions. By limiting zoning restrictions, developers have more flexibility in the adaptive reuse process and can jump over previously insurmountable hurdles.

But until these processes become overwhelmingly more accessible, adaptive reuse will continue to be an idealistic solution rather than a common reality.

Regardless, it is critical for tenants to stay abreast of these developments. The issue of vacant office space is exacerbating by the day, prompting cities to take action.

"Adaptive reuse" is becoming a prevalent concept, and as large-scale projects are introduced, we must prepare for a future where they become more feasible. Stay on top of the latest CRE trends as they evolve by subscribing to our blog!