Warehouses and distribution centers, certainly uncommon buildings, have become hot in the coronavirus pandemic as online shopping has accelerated the growth of e-commerce and unleashed a frenzy of buying and building low-rise structures, driving up rents and increasing returns for investors.
Now, as investors and others embrace carbon reduction goals, the challenge is to make those buildings greener.
In the United States, where regulation is lighter, developers are lagging behind their European counterparts in building sustainable warehouses and distribution centers, with buildings still being overly dependent on fossil fuels. Experts say another reason for this disparity is lease contracts that may discourage spending on building improvements that can reduce energy use.
But US companies are beginning to take steps to make their warehouses more energy efficient, including upgrading building materials. Some warehouse owners are even converting rooftops into solar farms that can power the building’s operations and, in many cases, lower utility costs for homeowners and neighboring businesses.
As more community solar programs are introduced and local governments set more ambitious decarbonization targets, progress is expected to accelerate.
“It’s the start of a wave,” said Brian M. LaMont, senior vice president of capital and construction management for STAG Industrial, a Boston real estate investment trust with a large portfolio of warehouses.
Experts say the need for change is urgent. Buildings are responsible for about 40 percent of the greenhouse gases that warm the planet, with carbon emissions from both construction and operations.
Warehouses and distribution centers – which usually have large, open interiors designated for storage with a small amount of square feet devoted to office functions – seem easier to make greener than other properties. Many of them consume a modest amount of energy to run, compared to more dense buildings such as office buildings or hotels.
“The path to decarbonization is shallow,” said Christopher Babatobe, associate director of real estate at Oxford Economics, a forecasting firm in London.
A new generation of net-zero warehouses is beginning to open across Europe, where building codes and environmental regulations are much stricter and standardized than they are in the United States.
But the biggest problem is that many existing repositories are not built to the highest standards. More than 70 percent of industrial acreage 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 from real estate firm Newmark.
Making these buildings green means ensuring they are well insulated, replacing old lighting with LEDs and upgrading HVAC systems, among other things.
Experts say that rental arrangements often discourage such investments. In office buildings, the landlord usually rents to multiple tenants and manages construction; If the owner makes investments that reduce energy use, he benefits when operating costs go down. But with warehouses, landlords typically lease to a single tenant under an arrangement known as a three-grid lease, which puts the occupant, not the landlord, in charge of maintenance and operations.
Brenna Wheeler, US director of operations for BRE, a building science center in Britain that runs the global sustainability certification programme, which some warehouse owners follow, said the owner was “less trained”.
The result is that there is neither a particular motive for the tenant nor the owner to invest in a building; The tenant does not want to spend money on another company’s property, and the landlord is reluctant because the energy savings will often benefit the tenant.
So-called green leases have emerged over the past couple of years to begin to remedy the situation. These leases encourage landlords and tenants to share information about things like energy use in the building, sometimes resulting in collaboration on retrofit projects.
Experts say improvements are quickly becoming a necessity, as building performance standards, including those that mandate lower carbon, are gaining traction, with the threat of fines for owners who don’t comply. In addition, a greener warehouse can be more attractive to companies looking to achieve their environmental goals.
In cases where energy costs are high and the warehouse roof is strong, some owners and renters have installed solar arrays to power their energy building operations. More states are requiring warehouses to be built with “solar-ready” roofs that can accommodate photovoltaic panels from scratch.
But sufficient solar installation to power a warehouse may take up only a small part of what is often a vast, unobstructed area.
This is where community solar energy comes in. To date, 21 states as well as the District of Columbia have community solar programs, most of which have been created to benefit low- and middle-income utility customers.
Under the programs, a solar developer rents a warehouse roof from the building owner and installs and operates the PV system, based on the owner’s assets. It feeds energy from the rooftop system into the local electrical grid, making it cleaner and reducing bills for customers who sign up for the community solar program.
For example, Solar Landscape, a community solar developer, installed photovoltaic panels at four Duke Realty-owned warehouses in the northern part of New Jersey and then registered subscribers. Esledi Kabada, a preschool teacher and mother of three in Avenell, N.J., was one of those, and said her monthly electricity costs have come down after she joined the solar program in her area.
Ms. Kabada said there is no fee to join the programme. She now gets two monthly bills—one from the utility company, Public Electricity and Gas Service, and one from Solar Landscape—but the total cost is less than she was paying.
“I am saving money,” she said, adding that she also feels good because she is “part of helping the planet.”
Community rooftop projects like the one that Ms. Capada is partnering with have another advantage: Because they’re largely out of sight, they don’t tend to provoke opposition the way solar farms on the ground sometimes do.
The warehouses themselves are already connected to the electricity grid and are located near customers who can benefit.
said Drew Turpin, CEO of Black Bear Energy, an advisor to real estate companies headquartered in Boulder, Colorado.
Black Bear helped create a rooftop solar project — said to be the largest in the country — at a warehouse owned by STAG Industrial in Hampstead, Maryland. The fund leases the 1.1 million-square-foot building to the Penguin Random House — it’s used to store and ship products from Marvel Comics — and its 23-acre roof to Summit Ridge Energy, a solar developer in Arlington, Virginia.
Summit Ridge’s solar installation can generate 9.2 megawatts of electricity, add renewable energy to the grid and reduce utility bills for nearly 1,300 homes and businesses in the local utility service area, which includes Baltimore and 10 counties in Maryland.
“These are small power plants,” said Steve Ryder, CEO of Summit Ridge, which has completed 13 community rooftop solar projects and 24 more are due to finish this year.
Mr. Lamont said that STAG, which acquired the building in 2013, has not replaced the existing lighting and HVAC system because those systems are still operating well. And while solar energy is sent to subscribers, the depot, built in 2000, operates off-grid, not rooftop array.
However, Mr. Turpin said the community solar project accomplishes much more than just a smaller solar installation that powers the building alone. “It’s using the roof to its full potential,” he said.