Warehouses and distribution centres, 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 behind their counterparts in Europe in constructing sustainable warehouses and distribution centres, 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 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 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 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 cause about 40 per cent of the greenhouse gases that are warming the planet, with carbon emissions coming from both construction and operations.
Warehouses and distribution centres – 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 per cent 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 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.
The owner “is less hands-on,” said Breana Wheeler, director of U.S. operations for BRE, a centre of building science in Britain that administers a global sustainability certification program, which some warehouse owners follow.
The result is that neither tenant nor landlord is particularly 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 areas such as energy use in a building, sometimes leading to collaboration on retrofitting projects.
And improvements are quickly becoming a necessity, experts say, given that building performance standards, including those mandating 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 companies looking to meet their environmental goals.
In situations where energy costs are high and a warehouse’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 warehouse roof from the building 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, N.J., who said her monthly electric costs had dropped after she joined the community solar program in her area.
Ms. 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.
“I’m saving money,” she said, adding that she also feels good because she is “part of helping the planet.”
Community rooftop projects such as the one that Ms. Cabada subscribes to have another advantage: Because they are largely out of sight, they do not tend to elicit opposition the way on-ground solar farms sometimes do.
And the warehouses themselves are already connected to the power grid and situated near customers who can benefit.
“If you think of a distribution centre as a building to distribute goods, it’s also, because of its size and location, a very natural place from which to distribute electricity,” said Drew Torbin, CEO of Black Bear Energy, a consultant to real estate companies that is based in Boulder, Colo.
Black Bear helped set up a rooftop community solar project – said to be the largest in the country – on a warehouse that STAG Industrial owns in Hampstead, Md. The trust leases the 1.1-million-square-foot building to Penguin Random House – it is used to store and ship out products from Marvel Comics – and its 23-acre roof to Summit Ridge Energy, a solar developer in Arlington, Va.
Summit Ridge’s solar installation can generate 9.2 megawatts of electricity, adding renewable energy to the grid and lowering utility bills for about 1,300 households and businesses in the local utility’s service territory, which includes Baltimore and 10 Maryland counties.
“These are mini power plants,” said Steve Raeder, CEO of Summit Ridge, which has completed 13 community solar projects on warehouse rooftops and is scheduled to finish 24 more this year.
STAG, which acquired the building in 2013, has not yet replaced the existing lighting and HVAC because those systems are still running well, Mr. LaMont said. And despite sending out solar power to subscribers, the warehouse, which was built in 2000, runs off the grid, not the rooftop array.
Still, the community solar project is accomplishing much more than a smaller solar installation powering the building alone, Mr. Torbin said.
“It’s using the roof to its fullest potential,” he said.
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