How tenants continue to press for greener commercial buildings, despite COVID-19

Manhattan’s incandescent skyline is still dimmed, its office buildings emptied of workers. And Silicon Valley’s corporate campuses remain islanded, surrounded by seas of empty parking lots, as a nation of commuters continues to log in from home. 

The COVID-19 pandemic has altered office life — and the commercial building sector — in ways few could have dreamt of even a year ago. Yet as companies begin to map out tentative plans for a post-pandemic return to cubicles, the emphasis on greening those buildings hasn’t receded.

If anything, industry leaders say, COVID-19 has intensified the urgency of making buildings more energy efficient and healthy for workers. 

For Workday, with some 12,300 employees worldwide, decisions are still being made of how and when to return to its mix of owned and leased office spaces. But this hasn’t diminished the software company’s plans to add onsite solar panels and battery storage at its headquarters in the Bay Area in California.

COVID-19 has intensified the urgency of making buildings more energy efficient and healthy for workers.

"Our focus on sustainability in our office buildings has remained strong. Leadership agreed we should be making this a priority and gave us their full support to make our buildings more environmentally friendly," said Erik Hansen, Workday’s director of sustainability at a breakout session during GreenBiz Group’s clean economy conference last week, VERGE 20.

Landlords are seeing similar trends. "My tenants are very concerned about the erosion of environmental gains because of COVID," said Sara Neff, senior vice president of sustainability at Kilroy Realty Corp., a Los Angeles-based landlord and developer with properties in San Diego, Los Angeles, the San Francisco Bay Area and the Pacific Northwest. 

It’s not just renewable energy anymore

Tenant concerns go well beyond energy issues. "Tenants are worried about things like, ‘What happens to our scope 3 emissions when nobody takes public transit? What happens to building energy consumption if we are constantly running the ventilation systems? What happens when our waste diversion numbers tank because we're throwing away so much PPE and are back to single-use plastics in our kitchens?’" Neff added, referring to recent client conversations. 

"But nobody has backed off," she added. "We’ve had [tenant] companies make new commitments since COVID began."

As more companies engage in this process, they’re learning that making green upgrades can be more complicated when they lease, rather than own. Historically, inflexible, standard lease terms can make it difficult for a tenant to influence green building factors such as the kind of energy their landlord taps into, or even accessing detailed data on resource consumption. 

Workday has found that when setting up offices in multi-tenant buildings, negotiating technical lease terms early offers the best opportunity for success.

Workday has found that when setting up offices in multi-tenant buildings, negotiating technical lease terms early offers the best opportunity for success. "It’s best to have a dialogue with the landlord early on — while the lease is being negotiated — so that key language about procuring renewable energy can make it into the contract," said Hansen.

The more tenants push, the more landlords can begin to drive change. "When a tenant asks about [things such as renewable energy or energy performance data] that’s when landlords start hiring people to run sustainability programs. Investments start getting made,” said Neff. "I can’t emphasize enough the importance of asking these questions and getting key terms into the lease."

Rising expectations

Sure enough, tenants are beginning to do so. Momentum for change has been building since before COVID-19. "Starting 12 or 18 months ago, we started to see tenants really push us, and to collaborate on environmental projects, which has been great," said Neff. 

As she sees it, tenants’ expectations have increased as more companies staff up to support their sustainability commitments. "Some of our big tenants are just now starting to hire heads of sustainability, so their sophistication is rising. Tenants who have been on the sidelines are now in the game," she explained.

With tenants such as Workday and landlords such as Kilroy getting smarter about green building upgrades, gains can compound as trust deepens. "There tends to be more transparency and collaboration with landlord-tenant green building transactions," said Rob Federighi, vice president of sales at Edison Energy, a global energy advisor based in Newport Beach, California. 

In practice, to make green building investments succeed, landlords need the right tenant, and vice versa. Tenant commitment can help landlords finance the investment necessary for major upgrades, such as solar plus storage. Tenants, meanwhile, need landlord support to achieve the sorts of zero-carbon energy goals more and more are committing to, Federighi added. 

Resources to help you green your lease

For both tenants and landlords exploring greener leases, libraries of standard lease terms have been developed and refined to help avoid common pitfalls. "There’s no need to reinvent the wheel," said Neff. The panelists recommended these resources: 

• The green lease library at the Institute for Market Transformation.
• U.S. Green Building Council (USGBC)’s guide to green leasing.
• Renewable Energy Buyers Assn. (REBA)’s Lessor Sustainable Energy Network (LESSEN)
• The Business for Innovative Climate and Energy Policy (BICEP) network at CERES.

And as more players steer into this space, Neff emphasizes that climate urgency dictates pragmatism. For instance, green project developers should not shy away from offsite renewables. There can be a bias towards doing as much onsite efficiency investment as possible, followed by as much onsite renewable as possible, but off-site renewable energy is sometimes regarded as less impactful.

"We have nine years to solve climate change," Neff said. "Let's first get fossil fuels off the grid.’"