Retailers, landlords see the promise of green leasing

Retailers, landlords see the promise of green leasing

Storefront by MarchCattle via Shutterstock

The Retail Industry Leaders Association (RILA), together with other retail associations, has organized a group of retailers and landlords to improve the environmental performance of leased retail space. That work resulted in the development and recent launch of RILA’s Retail Green Lease Primer, created in partnership with the Institute for Market Transformation.

Through best practice sharing, collaboration and tool development, the concept of "green leasing" is steadily gaining recognition within a working group composed of both retailers and developers.

RILA recently surveyed the group to assess the progress the industry is making toward leases that incentivize more efficient operations. The results show that significant progress already has been made in the last couple of years, and that retailers and landlords are steadily moving ahead with green leasing initiatives.

Existing leases pose a barrier to operating more efficient spaces

If a retail store is leased, the ability to make decisions concerning resource management is often dependent on collaboration between the tenant and landlord. For example, the tenant usually can make certain upgrades within its own space, but if the store isn’t submetered, it is difficult to measure the investment payback. Also, the tenant or landlord may not have the ability to pursue more sustainable strategies in areas that the other controls, such as the roof, waste hauling and base energy systems.

The question emerges: What can be done to overcome this barrier and achieve the cost savings associated with energy and waste reduction?

Green leasing is a process to identify lease provisions that potentially can be modified to address both landlords’ and tenants’ sustainability goals. These provisions tend to foster efficiency improvements that can save both parties money.

Potential “green” lease modifications fall into five broad types. They seek to:

1. Improve the base building and common area: Address improvements to the base building shell, including common areas.

2. Improve interior tenant spaces: Address improvements to the tenant’s space, consistent with the premises’ permitted use.

3. Align economic incentives to encourage efficiency investments: Address misalignments between the party that is investing in property improvements and the party that receives the benefits.

4. Increase access to information on resource use: Make the energy and water usage and waste generation data visible to both parties.

5. Clarify access and control of key property areas: Define who has access to spaces, such as the rooftop, and who has the right to implement projects in those spaces.

Retailers and developers can learn more about green leasing through RILA’s two-page Retail Green Lease Primer, which demystifies the concept of green leasing.

The industry is on the cusp of green lease adoption

Retailers and landlords involved in the working group have had access to the primer for several months, and some retailers and landlords were exploring or implementing green leasing even before joining the working group. RILA’s survey revealed that green leasing is getting more attention than ever:

• 63 percent said that they have had a conversation with their real estate and leasing teams about green leasing. Educating and informing real estate and leasing professionals is the first step toward adoption of new green leasing provisions.

• 44 percent said they have developed sample green lease provisions internally. Once lease language tailored to the company’s needs is developed, it is reviewed by legal counsel and can be used to further educate the teams that negotiate leases.

• 19 percent said they have tested green lease provisions with at least one lease. Doing so builds further awareness in the industry and helps companies to tweak the lease language to make it beneficial for both parties.

• 19 percent said they have developed a green lease.

Notably, over half of respondents viewed their internal construction and maintenance, facilities and legal teams as being “willing” partners in internal green leasing conversations. That is a crucial step, as those are the key audiences for adoption of green provisions.

While green leasing adoption in the retail sector still lags behind that of the office sector, it is clear that green leases are becoming an established strategy for enabling more environmentally and financially efficient operations in all types of shopping centers.

Storefront image by MarchCattle via Shutterstock.