A new ranking reveals an insufficient supply of net-zero carbon-ready office space in the Asia-Pacific region, against the backdrop of changing occupant expectations. With corporate zero-carbon (NZC) goals looming, top cities in the Asia-Pacific are increasingly facing a growing challenge: the imminent gap between demand and supply for net-zero carbon-ready office spaces—or fully electrified, highly energy-efficient buildings powered by renewable energy.

Take Sydney, which expects to face a 79% shortfall in net-zero carbon-ready office space in the next five years. The city grapples with a shortage of NZC job provisions, despite ranking first in JLL's Sustainable Offices City Index, which ranks cities based on their stock of grade A environmentally certified offices, as well as indicators such as climate risk and government proactivity.

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Hong Kong and Mumbai, also placed in the lower half of the index, are expected to record a 68% and 62% shortfall, respectively, for high-quality sustainable jobs.

"Renting office space in environmentally certified office buildings is becoming non-negotiable for tenants, but there is a very low correlation between these certifications and a building's energy performance," says Kamya Miglani, Head of ESG Research, Asia Pacific, JLL. "Even buildings with platinum-grade environmental certifications may not be ready for NZC, partly because current regulations are not strict enough to require assets to be NZC-ready," Miglani notes.

As corporate expectations shift, and demand for NZC-ready assets grows, the gap between demand and supply is set to widen in Asian cities. Such buildings remain a rarity in the region, partly due to the availability of renewable energy in the countries' power grids. For example, Seoul, which ranks 10th in the index, lags behind other markets due to its low proportion of renewable energy in electricity generation.

Adapting to Net Zero

Currently, none of the cities in the Asia-Pacific, including Singapore and Melbourne, the two highest-ranked cities after Sydney, is adequately equipped with a supply of net-zero carbon-ready office spaces.

The same trend is evident in other regions. Major US markets are facing a similar 75% or 57 million square meters supply shortfall by 2030, according to JLL data.

"The demand for high-quality, low-carbon jobs will inevitably increase as the lease expiration approaches," says Miglani. "Occupiers risk being stuck with limited options if they fail to plan ahead and reassess the sustainability credentials of their current headquarters."

To address this issue, the region needs to accelerate the rate of retrofitting to meet future regulations and keep up with growing demand. "Redeveloping or modernizing assets to be NZC-ready will be the most efficient solution to narrow the gap between demand and supply," says Miglani. "Investors and landlords need to start now with phased upgrades to gain a first-mover advantage or risk a brown discount as climate-related regulations become stricter," she adds.

The good news is that the modernization potential is substantial in the Asia-Pacific, with over half a billion square meters of grade A office spaces in the region built before 2011, according to JLL.

Catalyst for a Net-Zero Future

In some cities, governments have already played a crucial role in addressing the demand-supply gap for NZC-ready office spaces. Some have implemented legislation, while others have provided incentives to strengthen the pipeline of NZC-ready buildings through retrofit initiatives.

In June this year, Australia officially incorporated an energy performance measure into its National Australian Built Environment Rating System (NABERS) to reward building electrification and the procurement of renewable energy for building operations.

Similarly, the government of Singapore offered subsidies to building owners last year to reduce initial capital costs for energy efficiency upgrades, based on the level of energy standards achieved.

In the absence of a sufficient number of NZC-ready buildings, proactive government support will determine how quickly net-zero built environment goals can be achieved.