Despite being mostly empty, commercial real estate energy bills are mostly unchanged.
Commercial buildings in the United Kingdom have reduced energy consumption only by 16 percent on average during the pandemic, according to analysis from Carbon Intelligence. The worst-performing buildings are only achieving a 3 percent reduction, according to the analysis. Anecdotal evidence suggests similar numbers in the United States.
What a waste of time and money.
With occupancy so low and energy bills so high, there may never have been a more persuasive argument — or a better opportunity — to optimize buildings. You’d think.
The (missed) opportunity for capital upgrades
With buildings empty, service providers hungry for work and capital cheap, it seems a great time to bring buildings into the 21st century.
But as we’re still grasping the extent of the economic fallout, commercial real estate owners are cautious.
"The financial smoke will have to clear before many people will put project capital at risk there," explained Steve Gossett Jr., operating partner at Generate Capital, via email. "Most landlords are likely to husband cash rather than invest in their assets right now because they aren’t sure how functional the capital markets will be for real estate in the near future or how stable their tenants are."
In the short term, landlords are worried struggling companies will renegotiate leases or shift to a work-from-home model, requiring less office space writ large. The result: Commercial office spaces could become stranded assets, subject to write-downs and operating losses.
Being able to have this time to find these deeper problems and being able to address them will have long-term savings, even when the building becomes occupied again.
"In the past, before COVID, we’d say, ‘Oh, if you do these improvements you can increase your rental rates and you can have higher-quality tenants,’" said Marta Schantz, senior vice president of the Urban Land Institute’s Greenprint, an alliance of real estate owners and investors. "But now that case sounds tone-deaf to the market. If folks are worried about people even being able to pay their rent, they’re less focused on increasing rental rates and more on just getting rent."
To say the least, this is a missed opportunity. About half of all buildings were built before 1980, and many are old, dumb and wasteful. The U.S. building stock accounts for about 40 percent of the emissions. And the technology exists to change that; buildings could be optimized and transformed to be a resource for the electric grid. Buildings could be cheaper to run, provide healthier spaces and become more resilient.
What building owners can do now: tighten operations
As occupancy drops close to zero, some building operators have been surprised at how little change there has been in their energy consumption.
"In general, some clients probably have been surprised to find that parasitic loads were higher than expected," said Kyle Goehring, executive vice president of clean energy solutions at JLL, in an email.
Simply reviewing systems and buildings presets can save energy and money, according to Schantz.
For example, facility managers could reduce the run time of HVAC systems (responsible for about 40 percent of energy consumption), turn off lights in unoccupied spaces (lighting is responsible for 20 percent of energy use) or unplug appliances that aren’t needed (which account for about 33 percent of buildings’ energy use). For more specific ideas, check out Schantz’s blog or GreenBiz’s coverage.
These ideas, which are of course important, sound like no-brainers. As the world is turned upside down, I’m craving a cataclysmic change, not energy efficiency 101.Investment in critical infrastructure focused on digitization and efficiency will be absolutely key for economic recovery from the coronavirus pandemic and building resilience for the future.
But according to Schantz, the basics are revolutionary when facility managers never had time to examine operations in the before-time.
"I very much hope that as folks go through their buildings they will also find some red flags that they didn’t know existed," she said. "Being able to have this time to find these deeper problems and being able to address them will have long-term savings, even when the building becomes occupied again."
The COVID-19 conundrum and financial solutions
As people make sense of these crazy times, I often hear big ideas about how we could transform the future. As we emerge from this crisis, what type of world do we want to create? Simultaneously, it seems we’re also paralyzed by constantly constricting opportunities. The vanishing jobs, capital and resources are shifting mindsets to survival, not reinvention.
The good news is that the same financial mechanisms that allow building owners to upgrade without upfront costs are the same measures that would support broader economic development. This is especially true if the private sector partners with federal dollars to stretch capital further.
"Investment in critical infrastructure focused on digitization and efficiency will be absolutely key for economic recovery from the coronavirus pandemic and building resilience for the future," wrote Kevin Self, senior vice president of strategy, business development and government relations at Schneider Electric, in an email.
Schneider Electric is one service organization providing financing structures to move along projects without upfront capital. These include energy-as-a-service and energy savings performance contracting.
"Not only does digitization support resilience and sustainability, it saves on cost," wrote Self.
Schneider Electric is not the only organization offering financial solutions for energy upgrades. Service providers and startups have emerged in this space over the last 10 years, vying for companies’ potential energy savings. Other X-as-a-service organizations include Carbon Lighthouse, Sparkfund, Redaptive, Parity, Measurabl and Metrus.
While many of these service providers are likely working hard to navigate these turbulent months, the role they play will be more important than ever as we rebuild our future.
This article is adapted from GreenBiz's newsletter Energy Weekly, running Thursdays. Subscribe here.