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Real estate

Net zero carbon: locating opportunities for value creation in global office markets

Green ESG looking office building

Consensus is growing among real estate investors that ESG credentials will drive financial returns in the near future, if they’re not doing so already.

In the short-to-medium term, cities in Europe demonstrate more opportunities for value according to analysis by Nuveen Real Estate. But efforts from investors, occupiers and regulators underline the potential long-term opportunities in U.S. cities and beyond.

The journey towards net zero carbon (NZC) is not uniform across countries and cities. Office markets globally are in varying stages of transition and our analysis ranks global markets according to the strength of their momentum on the net zero agenda.

The results are presented as an index which reveals the current leaders where NZC momentum is already creating opportunities for investors and developers.

In our analysis NZC momentum is driven by four factors: investor demand, occupier demand, strength of regulation and the current level of certification of existing stock as illustrated in figure 1. Combining the four components with an equal weighting provides an overall score and figure 2 shows the high-level results from highest to lowest ranked centres.

The four key drivers of NZC momentum

Ranking of office markets by composite NZC momentum score

Currently, Asia Pacific coverage is two Australian centres – Sydney and Melbourne – although work is underway to incorporate a further eight centres in Asia. For the 50 remaining centres included in figure 2, global regions are colour-coded and the cities are ranked from highest to lowest scoring.

The global leaders in terms of momentum are mainly those centres considered to be gateway markets for cross-border investors, with the exceptions of Manchester and Cologne. These leaders are expected to show, and selective studies suggest are already showing, rent and value premiums as a result of the four identified drivers.

London leads globally – with the joint-highest rank for regulatory rigour, fourth highest for investor demand, fifth for occupier demand and seventh for stock certification.

Washington DC ranks second and could have trumped London but for its relatively weak investor demand score. New York and Boston are the other two U.S. centres in the top 10.

The central section of the rankings comprise those cities expected to gain momentum and where we might expect value to improve in the short to medium term. We classify these as up and coming or early-emergers. These centres tend to include smaller European markets and some gateway U.S. cities.

At the lower end of the spectrum, are what we deem laggards. These centres tend to score relatively poorly on most drivers. While European cities dominate the top 20, southern U.S. and sunbelt markets are prevalent at the other end of the spectrum.

NZC-aligned investors are more prevalent in European cities

Of the 430 investors signed up to either the Institutional Investors Group on Climate Change (IIGCC) or Net Zero Asset Owners Alliance x, 28% of those we reviewed are investors in real estate.

Ranking office markets by the share of their transactions that are accounted for by NZC-aligned investors provides an interesting insight into the leading and lagging markets. Of the top 20, 14 were European cities, including all top five spots. Paris topped the rankings with an extraordinary 47% share. Among U.S. centres, Boston and Seattle ranked in seventh and eighth, while New York ranked 20th.

International office market liquidity is highly concentrated, however, with the top five investment markets constituting over half of all aligned transactions by value. Our analysis took this into account and the combined impacts mean London and New York in particular improve their relative positions.

Corporate occupier momentum is building

Corporate commitments to decarbonize are increasing and NZC pathways are expected to become synonymous with the highest levels of certification. Corporates view the sustainability agenda as a reputational issue, along with other perceived benefits in terms of wellbeing and productivity, namely reduced staff turnover and lower operational costs.

Our internal survey of leasing brokers revealed major differences between occupier groups in their attitude to high environmental certification in general and NZC in particular. Government tenants were deemed most likely to demand high levels of certification, followed by banking and finance, professional and business services. Technology, media and telecommunications (TMT) were less likely, while trade and industry occupiers were least likely to demand high levels of certification.

The strength of government demand for certified buildings propels Washington DC and Sacramento into the top-three global leaders. after Luxembourg in Europe. Among the laggards are several office centres where TMT take up is more prevalent, namely Dublin, Amsterdam and Barcelona.


Regulatory momentum identifies which centres have the greatest expectations for NZC buildings. To determine this, we identified four categories:


London and Boston are the only cities complying with all four aspects. New York and Seattle have not set a NZC target for 2040, but otherwise comply with the remaining requirements. Of the other centres scoring highly for strength of regulation, five are from the U.S.: Washington DC, Denver, Los Angeles, San Francisco and Salt Lake City.

Levels of certified stock are woefully inadequate in many gateway markets

The proportion of environmentally certified stock according to wider market sustainability standards has grown in recent years as developers acknowledge the perceived leasing and liquidity benefits. The focus on NZC and decarbonization accelerates this process. Globally, there is a wide spectrum of certification.

In respect of the more mature office centres, San Francisco leads with 39% coverage, followed by Sydney at 38%; Melbourne and London each have 31%. Despite being a key investment market for aligned investors, Paris sits among the lowest tier markets with just 9% of stock certified. German centres are among other European gateways for aligned investors that lack sufficient availability of certified stock.

Opportunities for investors

There is a clear mismatch between the availability of buildings and investor and occupier demand for certified office buildings. This presents an opportunity to reposition or deliver relevant product and potentially take advantage of value and rental premiums.

Combining the two key components of demand momentum – investor and occupier – allows us to identify markets where the opportunities for delivering new product or for upgrading and re-positioning existing stock are better located.

Opportunities to deliver NZC-compliant product

Figure 3 shows market rankings for each centre. At present, demand momentum in Europe is primarily investor-driven, and the highlighted markets indicate several gateway markets where demand is running ahead of supply.

In the U.S. overall demand is driven more by leasing, with Philadelphia, Phoenix, Atlanta, San Antonio, Miami and Sacramento in particular lacking the stock to meet changing occupier preferences.

Final thoughts

While European centres are driving the majority of momentum for NZC currently and where we might expect opportunities for investors and developers to intensify over the short term, selected U.S. and Australian gateways are firmly in the mix. Several U.S. gateways along with smaller European centres look set to present opportunities for value premiums in the short to medium term and we will re-visit our index periodically to monitor progress and advise our clients on current and emerging market opportunities.

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