Experts Weigh In – Industrial Market Breakdown: Sustainability Trends and Outlook

While the industrial real estate sector has historically been considered a laggard as it relates to sustainability efforts, the market has undergone a notable transformation in recent years, establishing a clearer and stronger pathway to achieving sustainable progress. This shift can be attributed to a combination of factors, including stricter regulatory mandates and mounting investor demands for environmentally responsible building practices.   

Against the backdrop of a burgeoning industrial market — driven by broader industry trends such as a resurgence in manufacturing onshoring along with the expansion of warehousing and logistics facilities — it is more important than ever for industrial stakeholders to prioritize sustainability. Owners and tenants alike must assess the performance of their assets and embrace data-driven sustainable initiatives not only to protect, but to boost asset value in the long term.  

With this in mind, BREEAM USA recently brought together a lineup of industry experts to discuss key opportunities, challenges, and trends shaping sustainable growth in the space.   

Panelists included:  

• Hyon Rah, Head of Sustainability – US Real Estate at DWS Group  
• Leslie Moore, Senior Vice President and Director of ESG and Corporate Operations at LXP Industrial Trust  
• Deborah Teng, Senior ESG Program Manager at PGIM Real Estate  
• Madeline O’Donnell, Senior ESG Analyst for Principal Real Estate  

The discussion — moderated by BREEAM’s U.S. Director of Operations Breana Wheeler — focused on how industrial owners, tenants, and investors can thoughtfully advocate for green initiatives across their portfolios, breaking down what an impactful sustainability strategy looks like. The panelists offered up valuable insights, informed by combined decades of experience in the industrial and sustainability sectors, including:  

1. Sustainability is a growing priority for industrial investors, especially as many green initiatives increase properties’ value and operational efficiency.

“In a diversified fund, investors are expecting industrial to perform and meet the same sustainability criteria of any other property type,” said Madeline O’Donnell. “We can’t have industrial properties dragging down the funds' whole sustainability performance or GRESB score. So, it is a priority … [and] efficiency is hard to argue against. Reducing costs and operating more efficiently is a priority for everyone.”  

“Specifically on [PGIM’s] industrial funds, we are seeing a lot of investor interest in sustainability but specifically with onsite solar,” shared Deborah Teng. “[There is] a lot of interest in the ability to generate a substantial amount of renewable energy through the large roofs we have on the assets, and this has been something we’ve seen as a key metric to determine and demonstrate leadership among industrial assets. It also contributes to things like GRESB performance and is usually a highlight for the marketing of the fund as well.”  

“We [as asset managers] spend a lot of time on reporting, and we are doing this because [investors] are asking for it — and because we need to continue to have investments come into the portfolio level for us to maintain and improve performance,” said Hyon Rah. “From the investors' perspective, they want to make sure that all the assets are being maintained up to a standard, regulatory wise and also environmentally and socially.”  

2. Green building certifications like BREEAM have proven to be useful frameworks for industrial stakeholders looking to measure the sustainable performance of their assets.   

“Certifications are great … because they provide a really implementable and holistic framework to improve performance,” noted O’Donnell. “So, as [Principal Real Estate] works to integrate sustainability into industrial assets, we are able to leverage the research that groups like BREEAM have done to identify focus areas in addition to what we already know. The impact areas in BREEAM are research-driven, so we don't have to reinvent the wheel.”  

“[LXP Industrial] is primarily a triple-net, single-tenant landlord, so we don’t have access to all of the [tenant’s] data, and we don’t have operational control to force the tenants to do things differently in the building, but [certification] is something we can do to show that this is an efficient building, and here is the proof,” shared Moore. “Something that’s encouraging too is that when we started, — our first BREEAM certification was maybe four years ago or so — there were not that many U.S. industrial buildings certified. When you look at the list now for industrial certifications across the U.S. it's grown a lot; I think that's encouraging news showing that it can be done.”  

“Certifications really help with standardizing and having the same ruler to measure things by,” added Rah. “Since I started in this space, one thing I see that's notably different is [a shift] from certifying purely new construction and speculative type building performance to actual operational building performance… [certifications like] BREEAM In-Use that certify buildings based on performance are really helpful.”  

3. Tenant engagement and transparency are crucial components of successful sustainable performance on a portfolio level, as tenants’ internal sustainability goals often align with owners’ — creating more opportunities for collaboration.   

“Engagement is a really big piece of it … for [LXP Industrial Trust], since we’re not operating the assets, it's important for us to connect with our tenants and understand what is happening at the building, what they need our help with, what efficiencies they already have in place, and what they could use more of,” explained Moore. “As we’re exploring initiatives like solar and other things we believe will increase the value of our portfolio, it's more important than ever to work with our tenants to make those things happen because a lot of times it takes buy-in from multiple parties. The things that will make our building more efficient will reduce our tenants' operating expenses, making our building more appealing, more valuable, and increasing tenant satisfaction.”  

“There's a difference between asking the tenant for data and them taking it as a threat to their privacy, versus asking them what their goals are, explaining to them what our goals are, and seeing what we can actually do once we have access to their data,” mentioned Rah.” For example, we can [obtain] certifications with BREEAM, [carry out] energy auditing, or give them free advice on how they can improve their assets and performance.”  

“Especially after COVID, there has been more tenant engagement alongside an the increase in demand for more sustainability strategies,” said Teng. “A lot of tenants have their own corporate sustainability goals that they are trying to achieve, and it's critical to identify opportunities to collaborate … we’re all in this together.”  

If you missed the webinar, you can view the full recording here.   

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