North American City Sustainability Study 2023

Physical and transition risks can affect buildings, directly or indirectly, by having an impact on the markets with which the assets interact.⁴ To better understand how certain North American markets are addressing these challenges, CBRE Econometric Advisors (CBRE EA) assessed more than 60 markets based on the following criteria.

CBRE EA has identified the following 10 North American cities that are best positioned to withstand the impact on property values from both transition and physical climate risks:

Transition Risk

• All 10 have pledged to be carbon neutral or achieve net zero GHG emissions by 2050.
• Eight have building performance standards (BPS) in place to gradually reduce GHG emissions, which should allow them to achieve emission targets at a faster pace.

Physical Climate Risk

• Six have physical climate risks below average and eight have low baseline water stress.
• Six have improved air quality over the past five years.
• Four have decreased heating degree days over the past five years.

Mitigation and Adaptation Measures

• All 10 cities have increased use of renewable energy over the past five years.
• Eight have issued a significant amount of green bond funds for climate-related spending.
• Four have more than 20% of their total buildings LEED certified.

Figure 2: Leading North American Cities for Resiliency & Emission Reduction Target Years (Click on the cities for more details)

Source: American Council for an Energy-Efficient Economy, CBRE Research, July 2023.

Real estate investors and occupiers face many challenges to reduce emissions, including high interest rates and the rising cost of capital. Based on our study findings, following are some of the most relevant sustainability considerations for commercial real estate:

Green Initiatives

• Green finance, green building adoption and green leases provide great opportunity for the commercial real estate industry to achieve decarbonization goals and align the expectations of tenants and landlords.
• Additional green initiatives for renovation projects (e.g., water conservation, energy audits, use of solar energy, insulation and window double-glazing) should also be considered.

Regulations & Standards

• Government regulations are a critical part of decarbonization efforts.
• Investors should prepare for more stringent regulations and additional compliance and reporting requirements.
• Penalties for non-compliance vary among jurisdictions.

Renewal & Reduction

• Broader use of renewable energy sources, such as wind and solar, will have a significant impact on reducing GHG emissions.
• Investing in infrastructure that supports the use of renewable energy (e.g., electric-vehicle charging stations, rooftop solar panels and energy storage systems) will also help reduce GHG emissions.
• Implementing water-saving features and air-quality improvement measures can also help conserve energy usage.

Adaptable Sustainability Strategies

• Investors and occupiers should use this study to evaluate city-level performance based on a range of sustainability indicators.
• Investors and occupiers will benefit from developing real estate strategies that are adaptable to local market conditions.

¹ Strengthening Value Through ESG: Survey of Global Property Professionals, CBRE, Feb. 28, 2023.
² Bringing embodied carbon upfront, World Green Building Council, 2019.
³ Building Performance Standards Aim to Reduce Carbon Emissions Across the U.S., CBRE Econometric Advisors, November 2022.
⁴ Climate Risk and the Opportunity for Real Estate, McKinsey & Company, Feb. 4, 2022

The transition to a low carbon future has markedly increased the factors and costs that real estate investors and occupiers have to consider, including the regulations being established by the growing number of cities with emission reduction targets. CBRE EA believes cities that can demonstrate climate resilience are likely to benefit from a halo effect on property values and will attract more occupiers that are challenged to meet their own net zero goals.

CBRE EA assessed 66 North American cities for their resilience to climate change. The cities are evaluated for their performance on transition risk, physical climate risk, and adaptation measures. The CBRE EA Sustainability Study provides real estate professionals with insights to evaluate and benchmark real estate markets based on these characteristics.

CBRE clients can reach out to one of the report authors for insights on the report and the individual cities evaluated.