Building managers, owners, or other commercial real estate (CRE) stakeholders know the stats: at 35% of all electricity use, commercial property is one of the top end-users of energy in the United States, with energy often the single largest operating expense for property owners,contributing up to 30% of all operating expenses (that’s $2.27 per square foot!). But even more staggering is the U.S. Department of Energy (DOE) estimate that on average, 30% of this energy is wasted. Savvy building managers know that a tactful energy management strategy is the best defense against lost dollars – but it can also help attract and retain tenants by differentiating buildings in a highly competitive market.
So if you’re thinking about how to formulate your approach to energy efficiency, where do you start? Some questions that might be on your mind include:
- How will energy efficiency investments increase net operating income (NOI) and asset value?
- How can LEED or ENERGY STAR certification help attract high quality tenants?
- What energy efficiency measures can be implemented without impacting tenant comfort?
This post addresses these questions and others, and identifies some of the specific challenges and opportunities facing energy efficiency in the commercial real estate sector.
Invest in Energy Efficiency and Increase Your Bottom Line
As mentioned above, one of the most important reasons commercial real estate companies should pay attention to energy is because it’s a key cost driver for operations – and there’s often a significant amount of room for improvement if you haven’t invested in it wholeheartedly. Reducing energy use, whether through investments in more efficient equipment or simple scheduling adjustments, has a direct impact on a building’s NOI. An increase in NOI will in turn raise the building’s overall worth, since investors value assets based on expected future income.
A simple set of illustrative numbers shows how this works: assuming expenses equal 35% of revenue and energy use represents 30% of expenses, decreasing energy use by just 10% would result in a 1.6% increase in NOI. Ask any property manager or real estate investment team whether or not they want a 1.6% increase in NOI and I’m confident the answer will be a resounding YES.
So how can commercial real estate buildings actually reduce their energy use? All too often, significant energy is wasted simply because energy is being used outside of occupied hours. If everyone leaves the office at 6:00pm, why keep the lights on and air conditioning running until 9:00pm? With access to real-time energy data, commercial building owners can easily identify when energy is being used outside of operating hours, how much it can be reduced, and what the savings will be. Energy intelligence software such as EnerNOC’s EfficiencySMART Insight application can quickly analyze a large portfolio of buildings, identify evening setback opportunities at each site, and quantify the savings potential. And since buildings are prone to “drift” over time, real-time data allows you to maintain those savings month after month.
If you’re new to energy efficiency and don’t know where to start, benchmarking is a good place to begin to maximize your investments of time and money. Benchmarking similar buildings on a kWh/sq ft basis allows you to determine which buildings within your portfolio are the “energy hogs” and which ones aren’t. If you have already made energy efficiency investments across your portfolio, tracking variance to a baseline for each building can show you which investments are paying off and which ones aren’t. Many of our customers use Insight’s Portfolio View to do both, or have an up-to-date benchmarking analysisdelivered directly to their inbox first thing Monday morning (and no more messing around with utility bills and Excel spreadsheets!).
These are just two of the many analytical tools you can use to make sure your buildings are running optimally and contributing more dollars to your bottom line.
Attract and Retain Tenants with Energy Efficiency
Attracting and retaining tenants is one of the most important business drivers in commercial real estate. Just one month of increased vacancy can have a significant financial impact on a building’s profitability, so any efforts you can do to show tenants you are improving the work environment, reducing costs, and are at the forefront of sustainable building practices can go a long way in keeping them happy in their current location.
We increasingly see tenants and consumers put pressure on building owners to create more environmentally sustainable and energy efficient buildings. As a result, property owners and managers view smart energy management as integral to cultivating a sustainability-minded corporate image and attracting high-quality tenants, often taking the form of LEED certification or ENERGY STAR accreditation. According to the USGBC, nearly 40% of all building owners were planning to pursue green certifications for existing buildings by 2013, and an estimated 40% – 48% of all new non-residential construction will be green by 2015.
With the help of partners like EnerNOC, attaining LEED credits or higher ENERGY STAR scores can be a straightforward process. Software applications like ours can automatically generate ENERGY STAR scores using your monthly utility bills, update those scores monthly, and drive energy reduction in order to obtain ENERGY STAR certification. And by using a combination of demand response, software, and services, you can attain enough LEED points to catapult your facility from Silver to Gold, or Gold to Platinum status.
But it’s not just about showing tenants you’re committed to energy efficiency and sustainable business practices. What often matters most to commercial real estate tenants is that they have a comfortable work environment. Ever tried to do work in an 80 degree office? It’s not exactly the most conducive environment for workplace productivity. Replacing older equipment with new, efficient equipment can help commercial buildings maintain occupant comfort while also saving money. But how do you know if that efficient air handling unit purchased three years ago is performing the way it’s supposed to be? Through retro-commissioning (RCx), a full-facility tune-up designed to ensure your building is performing optimally, you can ensure you keep tenants as comfortable as possible, during a heat wave in August or a polar vortex in February. Optimal building performance means more savings, reduced maintenance and repair costs, and less hot/cold calls from tenants.
Impress your tenants and increase retention by showing them that your company is committed to making their workplace more economical, sustainable, and comfortable.
Focus on Energy Efficiency and Reap the Rewards
Energy efficiency can be a valuable tool to differentiate commercial buildings in a competitive market and positively impact your bottom line. Taking steps to understand the unique energy challenges and opportunities within commercial real estate is paramount to developing an energy management approach that saves money, delights tenants, and increases overall competitiveness.
