Driving Energy Efficiency in Leased Commercial Space is Complicated – and Worthwhile

May 2, 2016 By Carl Weinschenk

rentalIncreasing use of natural light by enlarging windows and conforming work areas is a win-win: It cuts energy costs and increases efficiency while making employees happier, more productive and likelier to stay with the company.

Actually implementing this — and other — obviously beneficial projects can be tricky when the company is leasing its space, however. Issues surrounding leased space and energy efficiency initiatives are the subject of a Department of Energy Report being released today. The report begins by noting that this is a big deal: Commercial spaces consume 20 percent of the energy used in the United States — and half of this is leased.

The report was mandated in the Energy Efficiency Improvement Act of 2015 and will be used in the possible creation of a recognition program similar to DoE’s Energy Star.

For energy efficiency in leased spaces to be implemented, two things must be present. The first is that projects must be financially attractive. The second is a bit trickier: Ways must be found to get both tenants and landlords on board.

There seems to be no doubt about the first element, at least according to the study. Cody Taylor, the Team Lead for Commercial Building Integration for the DoE’s Building Technology office, told Energy Manager Today that Energy Star-rated commercial buildings typically use 10 to 40 percent less energy than unrated buildings. Payback on projects can be relatively short — two to five years — and owners often can sell the property at a 6 to 10 percent premium.

Such projects have softer benefits as well, such as daylight harvesting.  It also pays to keep in mind that energy efficiency efforts can buttress the company’s image. Owners benefit because energy conscious organizations tend to be better tenants.

There clearly is a strong case for both tenants and building owners to create greater efficiencies in leased spaces. However, the challenge is the goals and priorities may conflict.

Lease structures vary. The bottom line is that the improvements that are made by the lease holder may result in benefits to someone else — the tenant. This complexity – that the party making the capital investment is not the immediate beneficiary – has tended to slow down momentum. “That disconnect has tended to be a barrier historically and still is a barrier,” Taylor said. “Even where there are lease clauses that allow owners to make capital improvements and pass on the savings, they still hesitant are to ask tenant to pay to because they don’t to drive them away by doing something that looks like a rent increase.”

Taylor said that the lack of sub-metering also is a challenge. Buildings without this technology generally spread costs between tenants. Thus, some tenants may benefit unduly and others pay more than its fair share of the in building-wide improvements. This can chill enthusiasm for a project.

Taylor said that these challenges are well known. Recently, he said, progress has been made. “The news is that many tenants and owners are finding ways to overcome some of these systemic barriers,” he said.

Taylor said that there are three phases – the search phase, the design phase and the occupancy phase – to which organizations searching for leased space should pay attention.

In the search phase, organizations should look at the buildings specifications closely. He said that increasing amounts of valuable information is available, often via municipal requirements. Buildings with sub-meters should be favored.

The design phase, Taylor said, focuses on specifying and agreeing upon the efficiency package that the space offers. It is the starting point for the tenant’s occupancy.

The occupancy phase can be the most complicated – and potentially most rewarding. “It is about ensuring that controls actual continue to function as designed,” Taylor said. “If people are not careful, controls can be overridden and go out of whack and the tenant will lose some of energy savings.”

There is an almost endless list of issues that must be assessed and managed on an ongoing basis. It can include, for instance, steps to ensure that HVAC is operating in the agreed upon manner. Creative details can be implemented. For example, there could a mandate that cleaning crews do their jobs during working hours to allow lighting and HVAC energy to be set at minimal levels when the company shuts down for the day.

Indeed, the occupancy plan can be so granular that it mandates that attention be paid to where people sit: If an individual who likes a warm work area should be seated far from an air conditioning vent, lest he or she bring in a space heater.

The challenges remain, but Taylor says progress can be made if both parties work together. “This is really a shared opportunity between owners and tenants,” he said. “It is not something that the tenant should expect the owner to take 100 percent care for them – and it not the owner’s responsibility alone.

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