Energy Efficiency and Leased Spaces

by | Oct 28, 2016

office building Energy ManageTraditionally, there is a bit of a tug and war over energy efficiency in leased spaces. It often is difficult for the landlord/owner and the prospective tenant to agree on how the costs and financial benefits of upgrading a space should be divvied up. This slowed down the speed at which leased commercial and industrial space are upgraded as compared to buildings owned by the organizations using them.

This, like much else in the energy world, is changing. The main reason is that there now is more motivation. More money can be saved than previously because of improving energy efficiency technology. In addition, times have changed to the extent that both sides of the equation – tenants and owners – have shared interest in increasing efficiency – not finding ways to avoid investments.

While in the past the tendency was to find reasons to avoid upgrades. Now, increasingly, the parties are trying to find reasons to get the job done. It can be a win all around, according Urban Land Institute (ULI) Executive Director Sarene Marshall. “If you as a landlord have set up leases such that the tenant pays for energy they consume, than it is in the tenant’s interest to make the investment,” Marshall told Energy Manager Today in a phone briefing. “It is in the owners interest because it is attractive to tenants. It’s very clear employers increasingly care, because their employees care about working in good performing office space. This is especially key in markets where employers are competing for talent.”

This week, the ULI unveiled a program aimed at accelerating that process. The Tenant Energy Optimization Program focuses on building communications between tenants, building owners, real estate brokers, project managers, architects and engineers, according to the organization.

The genesis of the program was an effort to reduce energy use in the Empire State Building in New York City. Subsequently, a number of companies – including Shutterstock, LinkedIn, Bloomberg, The Estee Lauder Companies and Cushman and Wakefield — conducted ten pilot projects. These projects generated savings of 30 percent to 50 percent in three to five years and annual internal return rates of 25 percent, ULI said.

The program launched with a website describing the pilots. “We are looking to help facility managers and consultants…find these ways to identify ways to reduce energy use and save money,” Marshall said. “It is especially important if and when the economy turns down again. Every penny will count at that point.”

ULI ‘s program seeks to be comprehensive:

The process consists of ten steps that involve selecting a team and office space, setting energy performance goals, modeling energy reduction options, calculating projected financial returns, making final decisions about implementation, developing a post-occupancy plan, building out the space, executing the post-occupancy plan and communicating results.

This is likely to become a much higher profile topic in near future. The U.S. Environmental Protection Agency (EPA) is designing a program to promote energy efficient leased commercial spaces. The program, which is informally referred to as TenantStar, is being created under the Energy Improvement Act of 2015. The deadline for responses to Responses to a Request for Public Comment on the criteria for the program is November 14.

It is an increasingly hot area. In July, Energy Manager Today conducted a podcast on the subject of “green leases” with Adam Sledd, the Director of Market Engagement for the Institute for Market Transformation and Billy Grayson, the Director for Sustainability for Liberty Property Trust, a company that offers such leases through the program.

The theme was much the same as that which underlies the ULI program: There are legitimate challenges to building energy efficiency in tenant spaces because the goals of the two parties generally don’t perfectly align. However, the movement toward energy efficiency and environmentally sound buildings from the periphery to the center of corporate, workforce and public thinking is empowering tenants and owners to forcefully address and work through the challenges.

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