March 25, 2024

The Value of Clean Energy Assets for REITs

REITs (Real Estate Investment Trusts) are investment trusts that pool money from investors to buy, operate, or finance real estate properties that generate income. REITs are often energy intensive, with a wide range of usage patterns across residential and commercial operations. Given their large footprint and extensive presence in many markets and regions, REITs have the opportunity to optimize their procurement strategy and take control of how they access, generate, store, and use energy.

According to the National Association of REITs in the United States, 70 of the top 100 largest operational REITS have publicly reported prioritizing environmental sustainability objectives, such as acquiring or installing renewable energy and managing consumption. Not only are environmental and sustainability initiatives a good social choice, they are also a smart financial investment.

There are a number of benefits associated with clean energy integration that are meaningful to REITs. Especially in a post-COVID world where tenants and consumers are exploring all options and carefully considering personal and business rentals, clean energy installations can attract a wilder pool of tenants and lead to increased rentals at higher price points. 

Economic Value

Investing in renewable energy technologies can lead to significant long-term cost savings for REITs. By generating and storing their own electricity through solar and battery storage or other distributed sources, REITs can reduce dependence on grid electricity, lower utility expenses, and hedge against future energy price volatility. By incorporating clean energy infrastructure such as solar panels on rooftops or EV chargers for tenants, REITs can generate additional income streams beyond traditional rent collection. This diversification can help mitigate risks associated with fluctuations in rental income and enhance overall financial stability.

Properties with  clean energy infrastructure can command higher market valuations and market energy efficiency initiatives, associated comfort measures, and increased attractiveness to environmentally conscious tenants. This enhanced value can translate into higher asset returns and greater investor interest in REIT portfolios.

Additionally, governments around the world offer various incentives, subsidies, and tax credits to encourage the adoption of clean energy technologies. REITs can take advantage of these financial incentives to offset upfront investment costs and improve project economics, further enhancing the financial attractiveness of clean energy initiatives.

Environmental and Social Value

Incorporating clean energy solutions aligns REITs with sustainable business practices, positioning them as responsible stewards of the environment. This commitment to sustainability can enhance brand reputation, attract socially conscious investors and tenants, and foster stronger community relationships. Clean technologies will help buildings decarbonize, use less energy, and operate sustainably. 

REITs also see pressure from investors and partners to see material ESG contributions. Decarbonization through clean energy offers a tangible, trackable opportunity to make strides in sustainable operations and report those efforts clearly and transparently. 

Investing in clean energy technologies can help REITs stay ahead of evolving environmental regulations and energy efficiency standards. By proactively adopting sustainable practices, REITs can mitigate regulatory risks, avoid potential penalties, and future-proof their properties against increasingly stringent environmental mandates.

Operational Value

By integrating onsite energy assets, properties have emergency backup generation and storage that can power critical operations during a power outage. Additionally, clean energy infrastructure typically has a longer lifespan and requires minimal ongoing maintenance compared to traditional energy systems. By investing in renewable energy, REITs can enhance the resilience of their properties against future energy supply disruptions, climate-related risks, and other external threats, ensuring long-term operational continuity and asset value preservation.

As electrification of passenger and commercial vehicles increases, there is corresponding pressure for REITs to provide the necessary charging infrastructure for tenants and fleets. This is not only going to be an attractive component for acquiring and retaining business, but something that many will look for as a dealbreaker for beginning or continuing holding a lease. 

Overall, integrating clean energy solutions into their properties enables REITs to unlock a number of financial, environmental, operational, and social benefits, positioning properties for sustainable growth and long-term success in an increasingly competitive real estate market.

Want to learn more about your options for evaluating clean energy solutions for your property or portfolio? GridMarket can help – and it’s easy, fast, and low-risk. Reach out today and our automated assessment platform can tell you what technologies make sense and how much you could be saving!

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