10 reasons green leases create value for tenants and landlords

Many corporate tenants have heard about green leases, and almost as many might wonder whether they should consider one. The answer, for a variety of reasons, is an overwhelming “Yes!” It is a real-estate opportunity that truly benefits everyone: tenants, landlords and not least, the environment.

Quite simply, a green lease is an arrangement that offers substantial benefits — both quantitative and qualitative — to both tenants and building owners/landlords by:

  • improving environmental performance of the leased space by securing a few critical commitments on the part of both the landlord and the tenant;
  • aligning financial incentives so that both parties benefit from adopting green measures; and
  • improving environmental data reporting transparency to enable tenants and landlords to measure success against agreed-upon goals.

A green lease need not be complicated. Often, it merely requires structuring terms and agreements already in place, such as temperature settings and building operating hours, in a fashion that provides sustainable cost savings without negatively impacting building performance and occupant comfort.

Implementing a green-lease strategy is not overwhelming, but it must be undertaken through a careful process to assure maximum effectiveness, sustainable success and savings.   

Here are 10 good reasons to pursue a green lease:

1. Reduce utility consumption and save money. A sound sustainability strategy almost always will reduce your requirements — and therefore, costs — for electricity, HVAC and water. Some green measures generate immediate savings, but most should more than recoup their investment over time. Jones Lang LaSalle’s clients have experienced short-term utility spend savings of 3 percent to 13 percent from easy-to-implement sustainable measures built into their leases. To translate that into dollars, let’s use a theoretical example of a 1 million-square-foot leased portfolio with average energy cost of $3 per square foot — a $3 million annual energy spend. The portfolio would reduce its energy costs by between $90,000 and $390,000 a year.

Run the same calculations on your property portfolio, and the reduction in utility costs alone is probably enough to justify a green lease. One of our clients adopted measures that identified a reduction in energy spend across about 50 global sites by approximately $3 million annually.

2. Improve the working relationship with your landlord. Frequently, lease negotiations are marked by a flood of tenant “asks” that put landlords on the defensive and can escalate to a contentious tug of war. Successful green leases are designed to financially benefit tenant and landlord so that both parties have an incentive to enter into sustainable agreements. Such dialogues about mutually beneficial green-lease provisions can strengthen your overall relationship with your landlord, and increase your desirability to building ownership as a preferred tenant.

3. Support corporate sustainability objectives. Many companies have set cumulative or percentage goals for carbon footprint reduction or other environmental gains across the entire organization. Successful green leases greatly assist such objectives because they not only generate, but enable, tenants to measure and report quantitative sustainability improvements. They contribute hard metrics that can be maximized in calculations of a corporation’s overall environmental gains.

Next page: Taking the first steps