No doubt about it, energy efficient buildings are high earning buildings.
Not only do the inherent energy savings of efficient buildings mean lower operations and maintenance costs over time, but commercial properties that take the lead in energy savings tend to command higher rents and are in higher demand among tenants than their less-efficient peers.
Because energy efficiency is truly a win-win for both commercial building owners and tenants, benefiting both sides in a number of different ways. For landlords, even the smallest of steps toward efficiency can mean big savings when it comes to their energy bills. Traditionally, commercial buildings waste as much as 30% of the energy that they pay for, amounting to some $57 billion in wasted spending nationwide each year. By investing about $500 billion in efficiency updates, the U.S. commercial real estate market would be able to save roughly $1.4 trillion per year, or 38% of current spending, according to estimates from the Rocky Mountain Institute. That’s no small change.
And tenants have long reported better productivity and employee retention numbers when working out of energy efficient buildings. Productivity gains can, of course, be difficult to measure, but the essence of the productivity argument in green office buildings is that certain design attributes enhance occupant health and well-being, resulting in healthier, happier, more satisfied and ultimately more productive workers.
“The evidence highlights that sustainable buildings make clear business sense–it’s not just about saving the planet,” write the authors of “The Business Case for Green Building,” published recently by The World Green Building Council. “These benefits range from risk mitigation across a building portfolio and city-wide economic benefits, to the improved health and well-being of individual building occupants. Moreover, green buildings can now be delivered at a prices comparable to those for conventional buildings and these costs can be recouped through operational costs savings and, with the right design features, through more a more productive workplace.”
What does this all mean for commercial building owners? How exactly can energy efficiency efforts help drive growth and income for commercial portfolios?
Consider the following examples:
Attracting and Retaining Tenants: Today’s employers want to lease space in efficient buildings, but not solely for the associated energy cost savings. Truth is, studies have shown that employees who work in energy efficient buildings report higher overall satisfaction, boosting retention rates and productivity for their employers. Yes, there are health benefits associated with working in a building with a better indoor environment, but much of the productivity gains come from what the location says about the company itself and its priorities. Studies have shown that 94% of employees are happier at work with better indoor environmental quality. Many companies have proven willing to pay more and sign more beneficial lease agreements in order to offer these amenities to their employees. And all of the same factors that attract tenants to efficient buildings also help to keep them in their leases longer than in conventional buildings, resulting in reduced turnover and stronger tenant relationships.
Raising Rent: According to some estimates, commercial buildings with Energy Star certifications rent for about 3% more per square foot and the difference in effective rent between energy efficient and conventional properties is about 7%. When sold, efficient buildings sell for as much as 16% more. All of these figures point to the higher value being placed on energy efficient properties, by landlords and tenants alike, meaning higher rents are not only possible but expected for these properties.
Reducing Operating Expenses: As mentioned, the typical commercial building wastes approximately 30% of the energy its owners pay for, amounting to $57 billion annually in the U.S. There is plenty of room there for improvement. As the average commercial office building in the US spends an average of $2.35/sq. ft. per year on energy expenses, 30% savings translates to saving $0.71/sq. ft. per year. If you’ve got a 250,000 sq. ft. building, that amounts to saving $176,250/year!
All of this adds up to a strong ROI case for energy efficiency upgrades, as the market is rewarding energy efficient buildings more so than less-efficient ones. Commercial building owners today need to understand that lower performing properties will are becoming less and less desired by the market and they should take steps now to keep pace with the overall shift to energy efficiency…before it is too late.
To accurately determine the ROI of turning your building into an energy efficient one, feel free to contact me at email@example.com.
Frank Hartmann is the Director of Sales at Bractlet and has 20+ years of experience in the commercial real estate industry. Frank understands customer pain points with underperforming buildings and wants to help building owners make smart energy efficient investments using the Bractlet platform.