Sustainability Atlas
Mobility & Built Environment·15 min read··...

Trend watch: Low-carbon buildings & retrofits in 2026 — signals, winners, and red flags

Signals to watch, value pools, and how the landscape may shift over the next 12–24 months. Focus on data quality, standards alignment, and how to avoid measurement theater.

The global low-carbon building market reached $721.67 billion in 2025, growing at a compound annual rate of 10.2% as regulatory pressure, energy cost volatility, and corporate net-zero commitments converged to accelerate building decarbonization (Zion Market Research, 2025). The building energy retrofit systems segment alone hit $210.71 billion in 2024, with Europe capturing 48% of that market driven by the EU Energy Performance of Buildings Directive mandating near-zero-emission renovated buildings by 2030 (Grand View Research, 2025). Yet beneath these headline figures lies a more complex reality: global retrofit rates remain stuck below 1% annually—half the pace needed to meet 2030 climate targets—while a 70% shortage of low-carbon office space is projected in 21 major cities by decade's end (IEA Energy Efficiency 2025; JLL Research, 2025). This article examines the signals, value pools, and potential red flags shaping the low-carbon buildings landscape over the next 12–24 months.

Why It Matters

Buildings account for approximately 37% of global energy-related CO2 emissions when including both operational and embodied carbon, making building decarbonization essential to any credible climate strategy (UNEP Global Status Report 2024/2025). The sector's emissions profile is particularly stubborn because buildings have 50–100 year lifespans, meaning decisions made today lock in carbon pathways for decades. By 2050, an estimated 80% of the building stock that will exist is already standing, making retrofits—not new construction—the primary lever for emissions reduction.

The financial stakes are substantial. Commercial buildings facing compliance deadlines under regulations like New York City's Local Law 97 risk penalties of $268 per metric ton of CO2 over established caps, translating to potential seven-figure annual fines for large portfolios (NYC Mayor's Office of Climate and Environmental Justice, 2024). Conversely, whole-building deep retrofits could unlock $16.8 billion in annual energy savings across 46,600 buildings in just 14 major markets, while avoiding stranded asset risk as carbon pricing mechanisms expand globally (JLL Research, 2025).

The supply-demand imbalance for low-carbon space creates both risk and opportunity. With 30% of projected demand for certified low-carbon office space unmet in 2025—a gap projected to exceed 70% by 2030—owners of high-performing buildings command rent premiums of 7–12% while struggling buildings face obsolescence (CBRE Research, 2025). This "green premium" dynamic is reshaping capital allocation across the real estate sector.

Key Concepts

Operational vs. Embodied Carbon: Operational carbon refers to emissions from heating, cooling, lighting, and powering buildings during use. Embodied carbon encompasses emissions from manufacturing, transporting, and installing building materials—typically 20–50% of lifecycle emissions for new construction but lower for retrofits that reuse existing structures. Comprehensive decarbonization requires addressing both.

Building Envelope Retrofits: Upgrades to a building's exterior shell—walls, roofs, windows, insulation—that reduce heating and cooling loads. Envelope improvements represent 52% of the retrofit systems market and are foundational to achieving deep energy reductions, as they must occur before equipment right-sizing can deliver optimal efficiency gains (Grand View Research, 2025).

Deep Retrofits vs. Shallow Retrofits: Shallow retrofits (lighting upgrades, basic controls) typically achieve 10–20% energy savings with quick paybacks. Deep retrofits integrate envelope improvements, HVAC replacement, electrification, and digital controls to achieve 40–60%+ reductions, but require larger upfront investment and longer payback periods. The IEA estimates deep retrofits must cover 20% of existing stock by 2030 to align with climate goals.

Energy Performance Certificates (EPCs): Standardized ratings indicating building energy efficiency, increasingly mandated for sales and rentals. The EU's revised EPBD requires minimum EPC ratings for rental properties by 2030, with the worst-performing 15% of buildings prioritized for mandatory improvements. Similar schemes are expanding in the UK, Singapore, and parts of the US.

Heat Pump Adoption: Electric heat pumps can reduce energy consumption by up to 75% compared to fossil fuel boilers and are central to building electrification strategies (IEA, 2025). Global heat pump installations reached 752,000 units in the Netherlands alone by end of 2024, though growth slowed 30% after policy uncertainty around mandatory adoption requirements.

What's Working

Integrated Deep Retrofits with Equipment Right-Sizing

The most successful retrofit projects combine envelope improvements with system upgrades in a coordinated sequence. By reducing heating and cooling loads first, building owners can install smaller, less expensive HVAC systems—a strategy called "tunneling through the cost barrier." The Empire State Building demonstrated this approach, saving $17 million in budgeted chiller replacement costs by first improving window performance, which allowed renovation rather than replacement of existing equipment. This integrated method achieved 38% energy reduction with a 3-year payback.

Digital Energy Optimization and AI Controls

Smart building controls and AI-driven energy management systems are delivering 20–40% energy savings without major capital expenditure, making them attractive first steps before deeper interventions. Johnson Controls launched its OpenBlue Retrofit Platform in April 2025, targeting 30% energy reduction through digital optimization alone. The technology works particularly well for commercial buildings where occupancy patterns vary and ventilation represents a significant load.

District-Scale Approaches

City-led district retrofit programs reduce per-unit costs through bulk procurement, shared financing mechanisms, and coordinated contractor scheduling. Utrecht's February 2025 wastewater heat pump system—a 25-27 MW installation serving 20,000 homes—demonstrates how municipal infrastructure can enable building-level decarbonization while reducing strain on electricity grids. These approaches are particularly valuable in dense urban areas where building-by-building retrofits face space constraints.

Mass Timber and Bio-Based Materials

Embodied carbon concerns are driving rapid adoption of engineered timber and bio-based insulation materials. Amsterdam's November 2025 Timber Construction Pact commits to 20% of new housing using timber or bio-based materials by 2025, targeting approximately 3,000 timber homes annually. The HAUT tower in Amsterdam stores 1,800 tonnes of CO2 in its timber structure while achieving a 50% lower carbon footprint than conventional construction.

What's Not Working

Retrofit Pace Lags Climate Requirements

Despite strong market growth, the global retrofit rate remains below 1% of building stock annually. Meeting 2030 climate targets requires doubling this pace to 2% or more (IEA, 2025). Current trajectories suggest significant undershooting of commitments made at COP28, where signatories pledged to double renovation rates by 2030.

Policy Instability Undermines Investment

The Netherlands' July 2024 reversal of mandatory hybrid heat pump requirements for 2026 illustrates how policy uncertainty dampens market momentum. Heat pump sales in the Netherlands dropped 30% in 2024 following the announcement, from 179,000 units in 2023 to approximately 125,000 units. Similar policy volatility in the UK and parts of the US has created hesitation among building owners and installers alike.

Skills Gap Constrains Delivery

An estimated 72% of employers in the energy efficiency sector report worker shortages, with 60% expecting moderate to large impacts on project delivery over the next 5–10 years (IEA, 2025). The retrofit workforce requires specialized capabilities spanning insulation installation, heat pump commissioning, building automation programming, and whole-building energy modeling—skills that take years to develop and certify.

Financing Mechanisms Remain Inadequate

The IEA estimates $3 trillion or more is needed to retrofit office stock alone across 17 major countries. Current public and private financing mechanisms fall far short of this requirement. Green mortgages, retrofit grants, and energy service company (ESCO) models exist but have not achieved the scale needed to finance building-level interventions across millions of properties.

Operational Performance Gaps

Renovated buildings can still waste 20–30% of potential savings if energy systems are not optimized for real-time use. Post-retrofit commissioning and ongoing performance monitoring are frequently underfunded, leading to "performance gaps" between design intent and actual outcomes. This undermines confidence in retrofit ROI projections and complicates financing decisions.

Key Players

Established Leaders

Johnson Controls: The Milwaukee-based building technology company launched its OpenBlue Retrofit Platform in April 2025, leveraging AI-driven analytics and digital twins to optimize existing building systems. The company serves over 1.5 million buildings globally and provides integrated retrofit solutions spanning HVAC, controls, and building automation.

Siemens Smart Infrastructure: Siemens offers comprehensive building technology solutions including the Desigo CC building management platform. The company's retrofit offerings emphasize grid integration and demand response capabilities alongside energy efficiency improvements.

Schneider Electric: The French multinational provides EcoStruxure Building solutions covering energy management, automation, and sustainability analytics. Schneider's retrofit approach emphasizes digital-first optimization before physical interventions.

Saint-Gobain: A global leader in sustainable building materials, Saint-Gobain supplies insulation, glazing, and envelope products essential to deep retrofits. The company committed to net-zero emissions by 2050 and offers lifecycle carbon assessments for building renovations.

Kingspan Group: The Irish insulation and building envelope specialist has invested heavily in low-carbon insulation products and circular economy initiatives, including recycled content insulation and product take-back programs.

Emerging Startups

BlocPower (New York, USA): BlocPower has electrified and decarbonized buildings in over 40 US cities, focusing on underserved communities and multifamily housing. The company raised $150 million in 2022 and partners with utilities and municipalities on building electrification programs.

Hempitecture (Ketchum, Idaho, USA): Specializing in bio-based insulation using industrial hemp fiber, Hempitecture addresses both operational and embodied carbon concerns. The company has seen growing demand as building codes increasingly incorporate embodied carbon requirements.

Enerbrain (Turin, Italy): This Italian startup uses AI and IoT sensors to optimize HVAC systems in commercial buildings, claiming 20–40% energy savings without hardware replacement. Enerbrain has deployed its solution across millions of square meters in Europe.

Carbfix (Reykjavik, Iceland): While primarily focused on carbon capture, Carbfix's mineralization technology is being explored for building materials applications, potentially enabling carbon-negative construction materials at scale.

Sense (Cambridge, MA, USA): Sense provides home energy monitoring through machine learning analysis of electrical signatures, enabling homeowners to identify retrofit priorities and verify savings post-installation.

Key Investors & Funders

Breakthrough Energy Ventures: Bill Gates' climate-focused fund has invested in building decarbonization technologies including advanced insulation, heat pumps, and building materials companies.

Climate City Capital Hub: Launched in June 2024 to address the €650 billion investment gap for city retrofit projects, this initiative channels public and private capital toward district-scale building decarbonization.

New York State Energy Research and Development Authority (NYSERDA): NYSERDA's $50 million Empire Building Challenge provides grants and technical assistance for deep retrofit demonstration projects, generating replicable models for the commercial sector.

European Investment Bank: The EIB has committed €1 trillion to climate investment by 2030, with building renovation a priority sector. EIB financing supports ESCO models and municipal retrofit programs across Europe.

US Department of Energy Loan Programs Office: The LPO provides loan guarantees and financing support for commercial-scale building decarbonization, including industrial heat pump and retrofit aggregation projects.

Sector-Specific KPIs

MetricCurrent Baseline (2025)Target (2030)Leading Performers
Annual retrofit rate<1% of stock2%+ of stockNetherlands, Germany
Energy use intensity (office)180-250 kWh/m²/year<100 kWh/m²/yearTop-quartile green buildings
Heat pump penetration (residential)~10% new installs30-40% new installsNorway, Sweden, Finland
Embodied carbon (new construction)400-600 kgCO2e/m²<300 kgCO2e/m²Mass timber projects
EPC label distribution35% A-rated (NL)50%+ A-ratedLeading EU markets
Deep retrofit payback7-15 years5-10 yearsWith scaled finance mechanisms

Examples

1. Empire State Building (New York, USA): The iconic skyscraper completed a $550 million deep energy retrofit in 2011 that achieved 38% energy reduction—exceeding guarantees every year since. The project saved $4.4 million annually with a 3-year payback and reduced greenhouse gas emissions by 54% between 2007 and 2019 (from 34,171 to 15,640 metric tons CO2e). Key innovations included retrofitting 6,514 windows on-site while reusing 96% of existing materials, and right-sizing the chiller plant to avoid $17 million in capital expenditure. The building now meets NYC Local Law 97 requirements, avoiding estimated $2.5 million in annual penalties, and is pursuing net-zero by 2035 through additional $21.7 million investments (RMI, 2024).

2. Amsterdam Timber Construction Pact (Netherlands): In November 2025, Amsterdam signed a commitment requiring 20% of new housing to use timber or bio-based materials through 2030, targeting approximately 3,000 timber homes annually. The initiative builds on successful projects like the HAUT residential tower (73 meters tall, storing 1,800 tonnes of CO2 in its timber structure) and complements the city's climate-neutral-by-2050 roadmap requiring natural gas phase-out across all buildings by 2040. The pact addresses embodied carbon that operational efficiency measures cannot touch, while supporting the emerging mass timber supply chain in Northern Europe (City of Amsterdam, 2025).

3. Utrecht Wastewater Heat Recovery System (Netherlands): Commissioned in February 2025, this 25-27 MW heat pump installation recovers thermal energy from wastewater treatment to provide district heating for 20,000 homes. The project demonstrates how municipal infrastructure can enable building-level decarbonization at scale while reducing strain on electricity grids that would otherwise need to support thousands of individual heat pumps. The system exemplifies the district-scale approach increasingly favored by European cities facing grid congestion and skills constraints for building-by-building retrofits (IEA, 2025).

Action Checklist

  • Conduct a portfolio-level carbon risk assessment to identify buildings facing regulatory compliance deadlines (e.g., NYC Local Law 97, EU MEPS requirements) and prioritize retrofit investments accordingly
  • Commission ASHRAE Level II or III energy audits for high-priority buildings to quantify savings potential and develop measure packages that "tunnel through the cost barrier" by sequencing envelope improvements before equipment upgrades
  • Evaluate digital-first optimization opportunities using AI-driven building management systems that can deliver 20–40% savings with minimal capital expenditure while generating data to inform deeper interventions
  • Assess embodied carbon requirements in jurisdictions where you operate and develop material specifications that incorporate mass timber, bio-based insulation, and recycled content products where feasible
  • Engage with utility and municipal incentive programs (NYSERDA, ISDE in Netherlands, UK ECO4) that can offset 20–30% of retrofit costs and accelerate payback periods
  • Develop a workforce strategy addressing skills gaps for retrofit delivery, including partnerships with trade schools, certification programs, and equipment manufacturers
  • Establish post-retrofit monitoring and verification protocols to close performance gaps between design intent and actual outcomes, protecting ROI projections and building confidence for future projects

FAQ

Q: What is the typical payback period for deep building retrofits in 2026? A: Deep retrofits—encompassing envelope improvements, HVAC replacement, and electrification—typically achieve 7–15 year paybacks at current energy prices, though this varies significantly by building type, climate zone, and local utility rates. Projects that sequence measures to enable equipment right-sizing (like the Empire State Building approach) can achieve 3–5 year paybacks on specific elements. Rising energy costs and carbon pricing mechanisms are shortening payback periods annually, and available incentive programs can reduce payback by 20–30% in leading jurisdictions.

Q: How do regulatory compliance deadlines affect retrofit prioritization? A: Buildings facing near-term compliance requirements—particularly those under NYC Local Law 97 (2024 compliance period began), EU MEPS (worst-performing 15% by 2030), or UK MEES regulations—require immediate attention regardless of payback calculations, as penalty costs can exceed retrofit investment. Portfolio owners should map their holdings against jurisdictional requirements and climate risk exposure, prioritizing buildings where regulatory fines, stranded asset risk, or tenant demand for certified space create compelling business cases independent of pure energy savings.

Q: What role does embodied carbon play in building decarbonization strategy? A: Embodied carbon—emissions from manufacturing and installing building materials—represents 20–50% of lifecycle emissions for new construction and is increasingly addressed through procurement requirements, certification schemes, and building codes. For retrofits, embodied carbon concerns argue for material reuse, recycled content products, and bio-based alternatives like mass timber and hemp insulation. Leading jurisdictions including Amsterdam, Vancouver, and parts of California now require embodied carbon disclosure and limits, making this a growing factor in product selection and design decisions.

Q: How significant is the skills gap for retrofit delivery? A: The skills gap is among the most significant constraints on retrofit acceleration. The IEA reports 72% of energy efficiency employers face worker shortages, with 60% expecting moderate to large impacts over the next decade. Critical shortage areas include heat pump installation and commissioning, building automation programming, energy modeling, and insulation installation—all specialized skills requiring years of training. Organizations planning major retrofit programs should develop workforce strategies incorporating trade partnerships, manufacturer training programs, and retention incentives for qualified technicians.

Q: What financing mechanisms are available for building retrofits? A: Available mechanisms include green mortgages offering preferential rates for high-performing buildings, property assessed clean energy (PACE) financing that attaches to properties rather than owners, energy service company (ESCO) arrangements where savings fund repayment, government grants and rebates (NYSERDA, EU funds, UK ECO4), green bonds for portfolio-scale investments, and emerging models like retrofit-as-a-service. Despite these options, the IEA estimates current mechanisms address only a fraction of the $3+ trillion needed for commercial retrofit globally, creating opportunities for innovative financing structures.

Sources

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