For big energy efficiency gains, tenant demand is key

ShutterstockAlexander Kalina

Tenant demand is everything in commercial real estate. If you’re a property owner, you know your income stream is reliant on attracting tenants who can envision turning your open space into their own unique store or office — and are willing to commit to paying the rent at your building versus the competition down the street. 

Tenant demand holds just as much weight when it comes to sustainability. A building can be designed and constructed to be the most efficient facility on the planet — with attributes running the gamut from thick insulation and recycled materials to high-performance mechanical equipment — but for all the advances the green building industry has made in the past 15 years, one thorny problem that remains is low tenant demand for high-performance spaces. 

Unlocking a $5 billion-a-year opportunity

In too many cases, businesses looking for a new location either desire to manage their energy usage but fail to ask landlords the right questions before they sign a lease, or they ignore energy and water efficiency altogether because they don’t view them as a major concern.

On the other side of the equation, not enough landlords and commercial brokers are starting proper dialogues that encourage accountability and transparency, nor adding language to their leases that rewards both parties for investing in efficiency upgrades. As a result, we’re collectively wasting billions of dollars in unnecessary utility spend every year, not to mention throwing away the health and productivity gains that come with greener working environments and less pollution, as pointed out in two recent studies by Harvard’s T.H. Chan School of Public Health.

Looking nationally, we see that tenants use over half of the energy consumed in leased commercial property (all 30 billion square feet of it) — often this energy is wasted by inefficient tenant spaces that lack elements such as plug load management and updated lighting and equipment.

How much? Their combined potential energy savings could be equivalent to taking Mexico off the grid. If achieved, a 20 percent reduction in energy use by America’s commercial retail, warehouse and office buildings would save the U.S. $5 billion annually. Increasing tenant demand is therefore necessary to reap the massive investment and pollution-cutting benefits of a greener built environment.

Landlord-Tenant Energy Partnership

Given this massive potential, the Institute for Market Transformation (IMT), a D.C.-based nonprofit that promotes energy efficiency in buildings (where I work), has partnered with the Retail Industry Leaders Association (RILA) and the International Council of Shopping Centers (ICSC) to launch the Landlord-Tenant Energy Partnership — a four-year, nationwide initiative designed to transform the U.S. commercial office and retail sectors through creating permanent tenant demand for energy efficiency in commercial leased space.

In sharing a leadership role with IMT on this initiative, RILA and ICSC underscore industry enthusiasm to tap into the vast savings that are possible. And their participation will have an outsize impact, as RILA members include more than 100,000 stores, manufacturing facilities and distribution centers globally, and ICSC has more than 70,000 members in over 100 countries.

Both organizations can attest to a growing member desire for strong energy performance in recent years. That interest was made visible in the 2016 Johnson Controls Energy Efficiency Indicator (EEI) survey of more than 1,200 facility and energy management executives in the United States, Brazil, China, Germany and India — which showed 42 percent of organizations surveyed were willing to pay a premium to lease space in a certified green building versus 15 percent in 2013. In addition, 37 percent of global organizations are building out their leased space to high-performance standards versus 18 percent in 2013.

Collaboration between landlords and tenants is critical

Traditionally, most efforts to ramp up efficiency in commercial buildings have focused on changing business as usual for building owners and managers (such as landlords). Although it’s true that landlords unilaterally can achieve significant waste reductions through smart building systems and operations, tenant occupants still hold the key to unlocking a building’s full savings potential — which means collaboration between the two parties is critical to accelerate towards a clean energy future.

For example, a 2015 IMT study showed that when landlords and tenants work together to execute a green lease, the potential savings in the leased U.S. office market alone is $3.3 billion in annual cost savings.

With all of this in mind, the Landlord-Tenant Energy Partnership is designed to: improve the site selection process; align interests and provide both tenants and owners the business case to pursue efficiency measures; promote energy-efficient tenant build out standards and methods; improve transparency of tenant utility consumption in office and retail buildings through submetering; and implement landlord-tenant engagement programs to reduce energy use after tenants move into a new space.

The initiative will build upon and align with existing corporate sustainability programs and leverage existing best practices and materials to overcome prominent barriers to efficiency, as well as deploy and scale solutions through a coalition of corporate, government and association leaders. The partnership’s advisory committee consists of CBRE, Cushman & Wakefield, Nike, the U.S. Department of Energy (DOE) and several other market influencers that will serve as channels to reach a wide span of tenants.

On Nov. 10, IMT will host a kick-off webinar for those interested in becoming participants where we will present a comprehensive project overview, identify key tenant energy issues and savings measures and share resources.