Trend Watch: Low-Carbon Buildings & Retrofits in 2026

In 2024, JLL's landmark analysis revealed that 30% of demand for low-carbon office space would remain unmet by 2025 across 21 major global cities—a gap projected to widen to a staggering 70% shortage by 2030 (World Economic Forum, 2024). Meanwhile, the global low-carbon building market surged past USD 654 billion, with energy retrofit systems alone valued at USD 210 billion and growing at 7.4% CAGR through 2030 (Grand View Research, 2024). These figures underscore an uncomfortable truth: while buildings account for 39% of global energy-related carbon emissions, the current global retrofit rate of approximately 1% annually falls dramatically short of the 3-3.5% required to meet Paris Agreement targets. As emerging standards like CRREM pathways and the EU's revised Energy Performance of Buildings Directive (EPBD) reshape buyer requirements, understanding these fastest-moving subsegments has never been more critical for sustainability leaders navigating the decarbonization imperative.

Why It Matters

The built environment represents the single largest opportunity—and challenge—in the global decarbonization portfolio. With over 70% of buildings standing today expected to remain operational in 2050, new construction alone cannot solve the emissions crisis. Deep retrofits offer transformative potential: reducing carbon by 50-75% compared to new construction while generating 30-50% energy savings, with some projects achieving 69% energy reduction and over 80% greenhouse gas cuts (IEA, 2024).

The financial stakes are equally compelling. The World Economic Forum estimates that large building retrofits alone could reduce building sector emissions by up to 51%. Analysis of 46,600 buildings across 14 markets indicates potential annual energy savings of $2.9-11.4 billion from light-to-medium retrofits, scaling to $16.8 billion with comprehensive whole-building approaches (JLL, 2024). Yet these gains require an estimated $3 trillion in investment to retrofit the office stock across just 17 major economies.

For emerging markets, the imperative is particularly acute. Asia Pacific represents the fastest-growing retrofit market at 10.3% CAGR, driven by rapid urbanization and government incentive programs. Cities from Mumbai to São Paulo face the dual challenge of accommodating growth while decarbonizing aging infrastructure—making retrofit strategy a cornerstone of climate-resilient urban development.

The regulatory environment has shifted decisively. The EU's revised EPBD, which entered force in May 2024, mandates that member states renovate the worst-performing 16% of non-residential buildings by 2030 and 26% by 2033. Fossil fuel boiler subsidies ended across the EU on January 1, 2025, with complete boiler phase-out mandated by 2040. In the United States, NYC's Local Law 97 requires buildings over 25,000 square feet to achieve 25% emissions reductions by 2024 and 40% by 2030—with substantial financial penalties for non-compliance.

Key Concepts

Understanding low-carbon building retrofits requires familiarity with the frameworks, metrics, and standards now shaping buyer requirements and investment decisions.

CRREM (Carbon Risk Real Estate Monitor) has emerged as the dominant science-based framework for real estate decarbonization. Originally an EU-funded project, CRREM provides 1.5°C Paris-aligned pathways covering over 1,000 scenarios across 40+ countries and all major property types. The framework's "Misalignment Year" metric—calculating when an asset's carbon intensity trajectory diverges from climate targets—has become essential for quantifying transition risk and informing renovation timing.

Minimum Energy Performance Standards (MEPS) represent the regulatory teeth behind retrofit mandates. The EU EPBD requires member states to establish national renovation plans, with first drafts due by December 31, 2025. These plans must include financing strategies, training programs, and data systems to support systematic building stock improvement.

Zero-Emission Buildings (ZEB) define the end-state target. Under the revised EPBD, all new public buildings must meet ZEB standards by 2028, with all new construction following by 2030. Critically, the directive now requires whole-life carbon (WLC) disclosure for new construction—embedding embodied emissions into regulatory compliance for the first time.

Energy Performance Certificates (EPCs) are being harmonized across the EU with a new A-G scale, where A represents zero-emission and G represents worst-performing assets. Digital databases with public access will include GHG emissions indicators, EV charging readiness, and air quality metrics by May 2026.

Sector-Specific KPI Benchmarks for Building Retrofits

KPI	Baseline (Pre-Retrofit)	Light Retrofit	Deep Retrofit	Best-in-Class
Energy Use Intensity (kWh/m²/yr)	250-400	200-300	100-150	<80
Carbon Intensity (kgCO₂e/m²/yr)	80-120	50-80	20-40	<15
Energy Cost Reduction (%)	—	10-20%	40-60%	>70%
GHG Emissions Reduction (%)	—	15-30%	50-75%	>80%
Payback Period (years)	—	5-10	7-15	3-7
CRREM Alignment Gap (years)	-15 to -25	-8 to -15	0 to -5	Aligned

What's Working

Integrated whole-building approaches consistently outperform incremental upgrades. The Empire State Building retrofit—a $31.1 million investment within a broader $550 million modernization—achieved 40% energy reduction and $4.4 million in annual savings with a three-year payback. By 2019, the building had reduced emissions 54% from its 2007 baseline, positioning it ahead of NYC Local Law 97 requirements and avoiding an estimated $2.49 million in annual penalties (RMI, 2024).

Energy Performance Contracting (EPC) has proven effective in overcoming upfront cost barriers. Under EPC models, contractors guarantee energy savings that finance retrofit costs, transferring performance risk from building owners to specialized service providers. Ameresco and Redaptive have pioneered this approach, with Redaptive's $1.7 billion platform funding and installing energy-saving equipment while managing building energy use.

Prefabricated retrofit solutions are dramatically reducing implementation timelines. Germany's ecoworks, which has raised €78.9 million, uses industrial prefabrication to modernize multi-family buildings in weeks rather than months, integrating digital processes with integrated energy systems for buildings up to four floors.

AI-driven retrofit planning is transforming how portfolios approach decarbonization. Johnson Controls' OpenBlue Retrofit Platform, launched in April 2025, uses AI-driven analytics to reduce energy consumption up to 30% without major structural changes. Y Combinator-backed Cambio employs LLMs and agentic AI to analyze building data across major institutional portfolios including KKR, Goldman Sachs, and Nuveen.

Circular economy principles are gaining traction in retrofit execution. The Entopia Building in Cambridge achieved 84% carbon savings per square meter versus standard fitout while diverting over 5,000 items from landfill. Analysis suggests 50% of retrofit materials can be recirculated, significantly reducing both waste and embodied carbon.

What's Not Working

Current retrofit rates remain woefully inadequate. The global rate of 1-2.4% annually must triple to quintuple—reaching 3-13.2%—to achieve net-zero targets. Canada's experience illustrates the challenge: achieving its climate goals requires a 3% annual retrofit rate, triple what the Greener Homes Grant program delivered.

Labor shortages threaten scaling ambitions. In Canada alone, 22% of the construction workforce will retire within the next decade, while 500,000 additional workers are needed to meet decarbonization demands. The skills gap extends beyond quantity to capability—qualified professionals in energy-efficient design and green certifications remain scarce globally.

Shallow retrofits dominate implementation. While deep retrofits deliver 40-60% energy savings, most completed projects remain "light" interventions achieving only 10-15% improvements. The incremental approach, while less disruptive, fails to address the fundamental performance gaps in building envelopes and systems.

Split incentive problems persist in tenant-occupied buildings. When landlords pay for retrofits but tenants benefit through reduced energy costs, investment motivation remains misaligned. Despite progress in green lease structures, this fundamental barrier continues to slow commercial building upgrades.

Material supply chain constraints complicate ambitious retrofit programs. Achieving global retrofit targets will require tens of billions of tonnes of materials—including plastic, mineral wool, glass, aluminum, flat steel, and concrete—between 2023 and 2050 (WEF, 2024). Securing sustainable sources for these materials while avoiding carbon-intensive virgin extraction remains an unresolved challenge.

Knowledge gaps impede technical execution. Many building owners and facility managers lack the technical expertise to conduct deep retrofits or even evaluate contractor proposals. This information asymmetry leads to suboptimal project scoping and missed optimization opportunities.

Key Players

Established Leaders

Johnson Controls International dominates the commercial and institutional retrofit market with comprehensive HVAC retrofits, building automation, and energy management systems. The company's 2025 launch of the OpenBlue Retrofit Platform represents the integration of AI-driven analytics with traditional building systems expertise.

Schneider Electric leads globally in energy management and digital automation for smart building systems. The company's EcoStruxure platform provides end-to-end building management covering energy efficiency, sustainability reporting, and tenant comfort optimization.

Siemens AG brings industrial-scale expertise to building management systems, automation, and HVAC upgrades. Siemens' digital twin capabilities enable sophisticated modeling of retrofit interventions before physical implementation.

Trane Technologies has positioned itself as the leader in electrification solutions, with particular strength in heat pump systems and commercial HVAC retrofits aligned with fossil fuel phase-out mandates.

ABB differentiates through circularity-focused retrofit approaches, combining digital twins, heat pumps, and solar PV integration with an emphasis on material reuse and lifecycle carbon reduction.

Emerging Startups

BlocPower has raised $266.6 million to deploy smart electric HVAC systems, offering no-money-down retrofit solutions that include heating, cooling, and hot water electrification for building owners who cannot access traditional capital.

Cambio (Y Combinator-backed) uses AI to automate commercial real estate retrofit planning and regulatory compliance. The platform serves major institutional investors including KKR, Goldman Sachs, Principal Real Estate, and Oxford Properties.

Aira raised $174.9 million in August 2025 to accelerate European residential electrification through integrated heat pump and solar systems, targeting 40% heating cost reductions with up to 100% CO₂ elimination.

cove.tool secured $30 million in Series B funding from Coatue and Robert Downey Jr.'s Footprint Coalition to scale its AI-powered building performance platform for intelligent design and retrofit optimization.

ecoworks (€78.9 million raised) pioneers industrial prefabrication for multi-family building retrofits, dramatically compressing project timelines through standardized, factory-built components.

Key Investors

Fifth Wall Climate focuses exclusively on decarbonizing the built world, investing in energy efficiency, electrification, and carbon sequestration solutions across real estate and infrastructure.

Breakthrough Energy Ventures (backed by Bill Gates) deploys $1-20 million investments in hard-to-abate sectors, including building decarbonization technologies.

Energy Impact Partners (EIP) targets growth-stage companies in decentralized energy, storage, and building electrification with a portfolio spanning grid-interactive buildings and smart energy systems.

Congruent Ventures invests in early-stage climate and energy technology, publishing the influential "50 by 2050" list tracking breakthrough decarbonization startups.

Prelude Ventures provides both early and growth-stage capital for advanced energy and building decarbonization, with particular focus on technologies addressing hard-to-electrify building systems.

Examples

1. Empire State Building (New York, USA)

The Empire State Building's deep energy retrofit stands as the global benchmark for commercial building decarbonization. The $31.1 million retrofit within a $550 million modernization achieved 40% energy reduction and $4.4 million annual savings. Key interventions included retrofitting all 6,514 windows onsite (quadrupling energy performance while reusing 96% of materials), upgrading four industrial chillers with automatic controls and variable speed drives, installing dimmable ballasts with photosensors, and deploying real-time tenant energy dashboards. By 2019, emissions had fallen 54% from the 2007 baseline to 15,640 tCO₂-eq annually—well below NYC Local Law 97's 2024 limit of 24,878 tCO₂-eq. The building now targets 80% emissions reduction by 2030 through $21.7 million in additional measures, with full net-zero achieved through renewable energy procurement.

2. MacKimmie Complex (University of Calgary, Canada)

This 380,000 square foot academic complex retrofit achieved 80% energy reduction while reusing 8,500 tonnes of sequestered carbon from the existing structure. The project demonstrates that even large institutional buildings can achieve deep decarbonization through comprehensive envelope upgrades, mechanical system modernization, and building automation integration—while preserving embodied carbon in existing materials rather than demolishing and rebuilding.

3. Entopia Building (Cambridge, UK)

The Living Building Challenge-certified Entopia Building achieved 84% carbon savings per square meter compared to standard commercial fitout. The project diverted over 5,000 items from landfill through systematic material recovery and reuse, establishing a replicable model for circular retrofit practices. The building demonstrates that deep carbon savings and circular economy principles can be integrated without compromising occupant comfort or commercial viability.

Action Checklist

FAQ

Q: What is the typical payback period for a deep building retrofit? A: Deep retrofits typically achieve payback periods of 7-15 years, though integrated projects like the Empire State Building have demonstrated 3-year paybacks through coordinated intervention and Energy Performance Contracting structures. Payback varies significantly based on energy prices, incentive availability, and the specific combination of measures implemented. Light retrofits may achieve faster paybacks (3-5 years) but deliver substantially lower carbon reductions.

Q: How does CRREM differ from traditional energy performance benchmarking? A: CRREM provides science-based, 1.5°C Paris-aligned decarbonization pathways rather than static benchmarks. It calculates the "Misalignment Year" when an asset's carbon intensity trajectory diverges from climate targets, quantifying transition risk in financial terms. Unlike traditional benchmarking that compares buildings to current market averages, CRREM evaluates performance against the declining carbon budget required to meet global climate goals. The framework is now aligned with SBTi's Buildings Target-Setting Tool and recognized by GRESB, INREV, and PCAF.

Q: What financing mechanisms are available for building retrofits in emerging markets? A: Emerging market options include Property Assessed Clean Energy (PACE) financing where available, on-bill financing through utility partnerships, green bonds and ESG-linked loans from development finance institutions, and Energy-as-a-Service models that eliminate upfront costs through performance guarantees. Multilateral development banks including the IFC, ADB, and regional development banks increasingly offer concessional financing for building efficiency. Blended finance structures combining public incentives with private capital are particularly relevant where commercial returns alone are insufficient.

Q: What are the most impactful retrofit measures for commercial buildings? A: Building envelope improvements (insulation, windows, air sealing) deliver the largest long-term impact, representing 52% of retrofit market revenue in 2024 due to their fundamental role in thermal performance. HVAC system upgrades with heat pumps and variable speed drives provide substantial operational savings. Lighting and controls (including occupancy sensors and photosensors) offer the fastest payback. The Empire State Building case study showed lighting and tenant systems delivered $940,862 in annual savings—the largest single category. Integrated approaches that optimize all systems together consistently outperform sequential, isolated interventions.

Q: How should organizations prepare for the EU EPBD's whole-life carbon requirements? A: Organizations should begin by establishing baseline whole-life carbon assessments using the Level(s) Indicator 1.2 methodology referenced in the EPBD. The European Commission will publish a standard WLC calculation method by end of 2025, with member states required to publish GWP limit roadmaps by January 1, 2027 (targets effective from 2030). Early movers should engage with existing WLC frameworks in Denmark, France, and the Netherlands, where limits are already enforced. Building material passports and circular procurement strategies will become essential as embodied carbon regulations tighten.

Sources

Grand View Research. (2024). Energy Retrofit Systems Market Size | Industry Report, 2030. Retrieved from grandviewresearch.com
International Energy Agency. (2024). Renovation of near 20% of existing building stock to zero-carbon-ready by 2030 is ambitious but necessary. Retrieved from iea.org
JLL. (2024). Global Building Retrofit Analysis: Supply-Demand Gaps and Investment Requirements. Published via World Economic Forum
Rocky Mountain Institute. (2024). Empire State Building Case Study: Achieving Radically Energy Efficient Retrofits. Retrieved from rmi.org
Science Based Targets Initiative. (2024). Buildings Sector Criteria and CRREM Pathway Alignment. Retrieved from sciencebasedtargets.org
World Economic Forum. (2024). Large building retrofits alone can reduce building sector carbon emissions by up to an estimated 51%. Retrieved from weforum.org
European Commission. (2024). Energy Performance of Buildings Directive (EPBD) Recast - Directive EU/2024/1275. Retrieved from energy.ec.europa.eu
CRREM Foundation. (2025). Carbon Risk Real Estate Monitor: Global Decarbonisation Pathways. Retrieved from crrem.org

Trend watch: low-carbon buildings & retrofits in 2026 (angle 7)