A relatively modest construction premium could yield significant performance improvements in Canada’s commercial building stock. Early evidence from one effort to motivate deep retrofits suggests a 40 per cent reduction in greenhouse gas (GHG) emissions, in keeping with the Canadian government’s 2030 target, could be achieved for an average incremental cost of about $10 per square foot.
Those numbers might crunch even more favourably if capital budgeters could count on a green premium. Yet, despite general recognition that sustainability influences net operating income (NOI), marketability and the physical condition of assets, there is no consensus on how it flows through to value and credit risk. Appraisers and lenders need credible, standardized metrics to produce valuations and inform underwriting, and those key pieces of the financing puzzle are still emerging.
“It is very case-by-case. We don’t have granularity yet in the Canadian market on what the composition of that premium is,” Colin Guldimann, a senior director of sustainable finance at RBC, told attendees at a recent seminar sponsored by the Canada Green Building Council (CAGBC).
JLL research, based on the firm’s global real estate advisory practice, concludes that green-certified assets do command a premium over non-certified competitors. That’s pegged at an average of 8.5 per cent worldwide, but, speaking at the CAGBC seminar, Julian Smith, JLL’s climate and decarbonization practice leader in North America, acknowledged there is wide variation from market to market. In Toronto, where more than 90 per cent of Class A office buildings carry some form of green certification, the premium is calculated to be less than 5 per cent.
Meanwhile, the financial penalties now attached to exceeding New York City’s allowable threshold for GHG emissions from buildings (known as Local Law 97) appear to be accentuating green premiums there. JLL analysts found low-carbon assets significantly outperforming those with more carbon-intensive profiles, and Smith speculated there is potential for a more pronounced divergence in Toronto based on tenants that have committed to the 2030 target for a 40 per cent reduction in GHG emissions relative to 2005 levels.
“There’s an 80 per cent shortfall in supply of low-carbon stock. Right now there are other issues in the market that are kind of slowing things down, but this marker really shows that there’s going to be a supply and demand gap at some point,” Smith submitted. “Have decarbonization measures increased asset value? The answer is yes. Increased NOIs and cashflows are happening right now globally. Is it standardized and somebody can apply it in the Canadian market? Not yet, but it is happening.”
Facilitating preparedness
Recently released estimates of the square footage costs of hitting the 2030 target are based on identified measures to reduce energy use and carbon emissions within a selection of portfolios participating in the Purpose Retrofit Accelerator. The initiative — part of a nationwide network of capacity-building exercises that draw on federal funding to promote and ease the implementation of deep retrofits — was launched in April 2024, by the sustainability consulting firm, Purpose Building, in collaboration with the CAGBC.
Through the accelerator program, owners/managers of commercial and multifamily buildings are eligible for rebates of up to 50 per cent on various elements of deep retrofit planning, design and project management. Thus far, enrollment encompasses roughly 1,700 buildings at some stage of mapping out how to achieve a minimum 50 per cent reduction in energy consumption and 70 per cut in GHG emissions. That includes 380 assets with completed net-zero transition plans and 26 where design and/or construction are now underway.
The $10/ft2 assumption is derived from a smaller cohort of 16 properties with finalized plans that collectively entail 135 retrofit measures. Accelerator program administrators also focus on these participants, along with some broader industry survey data, to assess the level of emissions reductions that might be deliverable by 2030 and what’s needed to make more aggressive gains. Those observations and related recommendations are highlighted in a new summary report of the accelerator program’s first-year activities.
The Canadian government’s stated goal for the capacity-building initiative is to develop preparedness, delivery models and expertise for deep retrofits to occur on the scale and at the pace necessary to achieve targetted reductions and, ultimately, net-zero emissions by 2050. Incentives are meant to facilitate future investment and work — ideally, in a way that cost-effectively maximizes emissions reductions using a straightforward, systematic approach that can be widely replicated — and help recipients sharpen the business case for required capital expenditures.
Authors of the CAGBC report caution that the initial dataset is comprised of assets that have been flagged as retrofit candidates and, thus, “may not represent ‘average’ Canadian buildings”. However, that still aligns with the program objectives.
“High-level observations help demonstrate what’s possible when committed owners and portfolio managers apply a clear and proven methodology to energy and carbon retrofit projects at prioritized assets,” the report states. “This figure ($10/ft2) is preliminary and based on a relatively modest pool of retrofits. We share it here with the hope that it will spark discussion, innovation and collaboration across the sector.”
CAGBC industry surveys that bookend the accelerator program’s first year show some progress on deep retrofit preparedness. When questioned in 2024, 30 per cent of respondents envisioned they would undertake future retrofit projects; that percentage jumped to 55 per cent in 2025. In 2024, respondents collectively envisioned they would finalize net-zero transition plans for about 6 per cent of their holdings before the end of 2026; that climbed to 17 per cent in 2025.
Nevertheless, there are some continuing financial, technological and policy-related drags on execution. Notably, 44 per cent of respondents indicated financing was more onerous in 2025 than 2024. Although 46 per cent saw pricing improvements for technology during that 12-month period, 62 per cent said they struggled to integrate it into their operations. Meanwhile, 67 per cent said a fragmented policy landscape caused them frustration and/or confusion in 2025, up from 65 per cent who voiced that sentiment in 2024.
Overlooked costs and paybacks
The report tallies several costs of inaction that aren’t necessarily acknowledged when decision-makers consider the upfront costs of retrofits — including “costs of utilities, insurance premiums, mitigating risks or repairing disaster damage, retaining tenants or attracting new ones” — and contends building owners/managers are not alone in overlooking this reality.
“Financial institutions, appraisers and other market actors need to account for the tangible advantages of efficient, low-carbon buildings,” it asserts. “Today, market valuations often lag performance, underestimating true gains in efficiency, comfort and resilience that high-performing buildings achieve.”
Recent findings from CBRE Canada’s 2026 survey of lenders’ sentiment do seem to show diminishing endorsement of that upside across a base of 47 financial institutions that collectively hold more than $200 billion worth of Canadian commercial real estate loans. This year, a smaller percentage indicated they would be willing to offer credit spread discounts for loans on projects with strong sustainability metrics (37 per cent) than did so in 2025 (41 per cent) and, when available, that potential discount is generally expected to be more modest. As well, just 8 per cent of surveyed lenders confirmed that a building’s carbon footprint currently influences loan conditions, while 20 per cent expressed the opinion that it never would.
Even so, green building advocates and practitioners within the sustainable finance field are striving to adjust that perception. CAGBC is currently working with the Real Property Association of Canada (REALPAC) and appraisal specialists from Canadian real estate advisory firms to develop standardized approaches for assessing sustainable attributes. Guldimann confirmed lenders are grappling with the same issues.
“We’re engaged in industry groups right now trying to whittle down the information that we could be gathering into what’s financially relevant to the way that we think about lending to buildings so that we can price risk better, price loans better, underwrite these buildings differently,” he advised. “We’re really trying to understand: What does this do to vacancies? What does this do to lease-up? What does it do to all the different parts of NOI? And how does that translate to valuation?”
Guldimann and Smith concurred that the connection to value is rooted in how green attributes sway underlying risk and returns — drive higher rents, shorten lease-up time, reduce utility, maintenance and insurance costs, etc.. That relies on convincing proof, which, for now, tends to be more piecemeal than comprehensive.
“To ask a valuator to put that to a valuation is near impossible because they don’t have the evidence,” Smith said. “That hard data is not there and it makes it challenging, but those are the markers that need to be focused on.”
