5 benefits CRE tenants see from building efficiency initiatives March 30, 2017 | Alex Richardson

Building efficiency initiatives are most commonly initiated by building owners and run by building teams; as a rule, tenants aren’t key players in pushing for things like submetering, building optimization, or large efficiency investments. On some level, this makes sense: tenants don’t have the long-term interest in the value of the building and its performance that owners do.

However, as forward-thinking commercial tenants become more aware of the financial and image-related benefits of these moves, they are increasingly taking leading roles in making them happen, often through green leases and other, similar devices. Here are the top five benefits that commercial real estate tenants see from efficiency initiatives

 

1. Lower utility bills

The clearest motivator for any business is its bottom line. Building efficiency reduces the amount of energy, gas, and water that is required for daily operation. These things cost money – often a lot of money – and are billed to tenants directly under a triple net lease or indirectly under a gross lease. The result is the same: Tenants pay for the utilities that they use and cutting use means cutting costs.

The savings are often significant for every stakeholder involved. The Tower Companies, a DC-area commercial real estate company, cut water use by 45 percent by enacting a water management program, resulting in about $14,000 in annual savings.

Energy savings are often even larger. Small businesses across the U.S., which make up the majority of commercial tenants, spend approximately $60 billion on electricity, according to EnergyStar. Between 10 and 30 percent of this could be saved through building effiency measures. Often medium and large businesses are able to recognize still greater savings due to efficiencies of scale.

 

2. Higher employee morale

Working in an energy efficient building also has a marked, measurable impact on employee morale. Employees prefer working for an employer that they feel cares about the environment and, perhaps as a result, tend to be more productive.

According to research cited by the U.S. Green Building Council, office workers in companies that had adopted rigorous environmental standards were an average of 16 percent more productive than their peers. Companies in buildings certified under the Council’s LEED standard also saw better recruitment and employee retention levels.

Across the U.S. economy, the USGBC cited research that estimated $90 billion in increased productivity from employees in LEED-certified buildings.

 

3. Competitive differentiation

It isn’t just employees who care about a commitment to sustainability. Increasingly, consumers value brands that put in the work to be environmentally conscious and reward them with their business.

A 2015 Cone Communications/Ebiquity Global CSR study found that 90 percent of consumers expect the companies with which they do business to work to address environmental and social issues and that 84 percent of them actively seek out responsible products. Perhaps more strikingly, 57 percent reported that they would even choose a product of lesser quality if it was more socially or environmentally responsible. In other words, they’re willing to sacrifice some measure of their own enjoyment for what they believe in; this is important to them.

Because buildings make up such a large part of domestic energy and water consumption, tenants are increasingly placing a focus on the sustainability of the spaces that they rent. Many have found that it is financially worthwhile to devote real resources to building efficiency initiatives in tandem with outreach efforts designed to make consumers aware of them.

 

4. Health benefits

Sick employees cost employers across the U.S. economy about $576 billion every year, according to Integrated Benefits Institute research cited by Forbes. That’s more than $4,000 per employee. That isn’t down to workers playing hooky, either: A significant portion comes down to “presenteeism,” when employees come into work despite being sick and are less productive or get their coworkers sick. And that doesn’t even get into nightmare scenarios, like the one the fast-casual restaurant chain Chipotle saw last year.

Employers bear the brunt of the costs involved when their employees get sick. They lose productive work, they often pay for sick days, and they cover a significant portion of their healthcare costs. Companies with self-funded insurance even pay directly for their care. So it makes sense that businesses would find it worthwhile to invest in their workers’ well-being. By investing in green initiatives or by locating themselves in buildings that have, they can see significant reductions in these losses.

According to studies cited by the USGBC, 55 percent of firms cited health and well-being as the prime motivator behind investing in green building initiatives. In addition to using less energy, green buildings tend to be cleaner and safer for the people in them. LEED-certified buildings must comply with indoor environmental standards.

Building retrofits that improve the indoor environment of a building result in 18-25 percent reductions in asthma and allergies incidents, 9-20 percent reductions in communicable respiratory diseases, and 20-50 percent reductions in generalized health and discomfort effects, according to the U.S. Department of Energy.

 

5. Investment in the future

While it won’t show up on a quarterly, corporate tenants who take the long view sometimes justify their commitments to building efficiency and other sustainability measures in terms of a long-term investment in their businesses’ futures. For their businesses to keep growing and succeeding, the planet will need to continue thriving. They see their sustainability work as a means of doing their part to secure the future of the planet and their business along with it.

Taken together, these benefits provide a compelling motivator for commercial real estate tenants to invest in green spaces. As more businesses wake up to these advantages, we can expect to see more of them taking a leading role in building efficiency initiatives.

About The Author

Alex Richardson is a staff writer at Aquicore. He writes about green policy, energy efficiency, and innovation that affects commercial real estate. Alex.Richardson@aquicore.com.