“We’re just starting to see it,” said Guy Grainger, speaking to Fortune on the sidelines of the COP26 climate conference in Glasgow. “I think over the next few years, we’ll see more examples of ‘brown discount,’ and it’s significantly larger than a ‘green premium’” for those buildings that have been made sustainable.

The pressure was coming to Europe and the U.K. first, he said. In one very early case, a building in the U.K. was hit with a “brown discount” of about a third of its price, Grainger said. “It was valued last year at a certain level, and then when you took into account the costs of transitioning it to net-zero carbon, then the price was reduced by 30%.”

That’s compared to a general 5% to 12% increase in value for a net-zero building, he said—a so-called green premium.

Jones Lang LaSalle, known as JLL, manages, builds, buys, and invests in real estate in 80 markets; the Chicago-headquartered company managed 5.4 billion square feet globally in 2020, and its investment arm had $68.9 billion under assets at the end of the year.

Building emissions

Emissions and the footprint of buildings are typically divided into two areas: the emissions associated with construction and raw materials used to create the building, and the emissions and waste associated with operating and furnishing buildings that already exist, from their energy sources to the life cycle of the chairs and supplies inside.

In the Northern Hemisphere, the challenge will be largely in retrofitting existing buildings to make them net zero, says Grainger, as 80% of the buildings in the Global North are expected to still exist in 2050.

“When you add that up, it’s enormous,” he said. In the city of Glasgow, for example, there are only two net-zero buildings, he added.

“What we’re saying there, is the risk is far greater than the opportunity,” he added. “It’s almost like the opportunity is to create a resilient long-term, real asset. That’s the opportunity. The risk is, if you don’t, the value is going to start really, really dropping because you’re not pricing in that transitionary cost.”

Grainger noted that the real estate industry was still in the very early stages of mapping out exactly how government regulation and consumer demand—including from tenants, who now themselves often have net-zero targets—would shape the economics of a building, and when a discount might kick in.

“And if so, does that affect the way banks lend on it? Does it affect the way insurance insures these buildings? That’s got to be worked out,” he said.

Grainger pointed to last week’s announcement of the Glasgow Financial Alliance for Net Zero, which now covers $130 trillion in assets, as a sign that banks will increasingly look for concrete transitional plans when they decide where and how to lend.

“Am I going to lend on this $100 million office block? Well, I will if it’s got a credible transition plan to net-zero carbon,” he said. “That’s a game changer.”

The “brown discount” was likely to stick around, he said—unlike the financial benefits of transitioning a building toward net zero.

“A green premium is kind of temporary. We’ve got to assume that all these buildings will be net-zero carbon at some point. So at that point, green premiums—gone.”