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Energy-efficient buildings have lower operating costs, but also tend to command higher rents and enjoy higher occupancy and tenant retention levels than traditional buildings.

A recent Energy Efficiency Survey, developed by the Institute of Real Estate Management (IREM) in collaboration with the Institute for Market Transformation, looked at what motivates office building owners to improve energy performance. The survey focused on how financial methods used to evaluate capital expenditures impact decisions to invest in improving energy efficiency.

IREM and the Building Owners and Managers Association (BOMA) distributed the survey to their members and received 307 responses, which represented 1.7 percent of the total survey distribution. The survey found that most respondents use simple payback calculations to evaluate energy efficiency projects, usually basing decisions on recovering the investment in one to two years. The study revealed that this simple payback does not capture the full benefits of energy efficiency, like Net Present Value (NPV) analysis, which incorporates potential revenue increases from higher rental income.

The survey also found that building owners are more inclined to invest in energy-efficiency improvements if they can charge higher rents, particularly in split-incentive situations, where energy-cost savings accrue solely to tenants. Split incentives had posed a barrier to investing in improving energy efficiency, but this was overcome with the “green lease,” which requires tenants to participate in energy and water conservation programs.

Additionally, the survey noted that while the property manager is responsible for the building’s everyday energy management, the asset manager usually makes the final decision on whether to invest in improving energy performance. When third-party managers have authorization to make capital expenditures it is usually a small dollar amount of $25,000 or less.

“But that authority exists almost not at all,” according to Brenna Walraven, founder/CEO of Corporate Sustainability Strategies Inc., which provides sustainability strategy development and execution plans.

CBRE’s Global Director of Corporate Responsibility David Pogue notes he is surprised IREM’s study focused on energy efficiency.

“Energy efficiency was a singular topic a decade ago, when everyone began getting buildings Energy Star-certified,” Pogue says.

Pogue was less surprised by the low rate of survey respondents, which he suggested is an indication that people viewed the survey topic as old news. When a 2009 study of 150 Energy Star buildings in 10 markets revealed that these buildings were commanding rent premiums of three to five percent and enjoyed high occupancy levels, landlords of class-A office buildings got on board, but those with lower quality assets did not necessarily.

“Today most of the office sector has broadly adapted green practices, though not every building is necessarily certified by a green-rating system,” Pogue says.

The 2016 Green Building Adoption Index study by the CBRE Group Inc. and Maastricht University showed that the rate of growth in ‘green’ building has slowed, rising from 39.3 percent in 2014 to just 40.2 percent last year, but adoption of green building practices in the 30 largest U.S. cities continues to be significant.

“While the rate of growth in ‘green’ buildings has slowed modestly, our latest study underscores that in most major markets, sustainable office space has become the ‘new normal,” Pogue notes.

The study reported that 11.8 percent of U.S. office buildings, representing 40.2 percent of office space, have been certified by either the U.S. Green Energy Council’s Leadership in Energy and Environmental Design (LEED) or the U.S. Energy Department’s Energy Star program.

“However, that nearly 40 percent of high-profile office buildings in core urban markets are green-certified because they have to be green to compete,” Pogue adds. “Those buildings tend to attract high-profile tenants, who demand a high-performance building environment.”

LEED rates a building’s impact on the environment, but Pogue points out that the next level of certification, International WELL Building Institute, rates a building’s impact on occupants. The WELL Building Standard places health at the center of indoor design, incorporating healthy ideas based on seven concept categories: air, water, nourishment, light, fitness, comfort and mind.

 

Source: NREI

Approximately 10,000 baby boomers turn 65 every day.

That staggering fact is not lost on the world of commercial real estate, and many in the property management field in particular are working to deal with the waves of coming retirements.

And, as the younger generation of property managers take over, many experts say they will continue to carry the flag of sustainability and push property management to be even greener than it is now. “It’s not that the new generation will save our bacon,” says Marc Intermaggio, executive vice president of BOMA San Francisco, noting that property management has come a long way in sustainability goals. “But there is a broader level of consensus among the younger folks simply because these environmental issues have been elevated more for them, than during the 1950s and 1960s.”

BOMA San Francisco has been partnering with San Francisco State University’s College of Business to develop curriculum that allows students to get a certificate in commercial real estate by taking four specially designed classes. The first four students graduated from that program this winter. “We’re trying to take this to the rest of the California state university system,” says Intermaggio. “This is going to help students be more job-ready, to have even more training, to have a greater familiarity with the issues.”

Industry analyst CEL & Associates Inc. estimates that there could be an annual shortage of 15,000 to 25,000 qualified real estate professionals—in all fields— nationwide, says Christopher Lee, president of the group. Property managers are a profession that is also constantly in demand, Lee says. In a boom, more managers are needed to meet demand of new construction; in a downturn, managers are still needed to keep existing buildings going—and to ensure they operate at peak efficiency to save crucial capital.

Lee says it is difficult to predict when real estate professionals will be leaving because many are staying on longer due to the recession. Property management is also a field that allows people to work into their later years, unlike more physically taxing jobs, he says. “Many people are holding back on retirement because of economic uncertainty,” says Lee. “But once they leave, they will leave at a quick pace and my concern is that there is a lack of people in the pipeline to take their place.”

Individual companies are also working to ensure that the younger generation is ready to take the reins—and that they will continue to maintain sustainability programs. CBRE Group Inc. has put 15,000 employees through BOMA’s Energy Efficiency Program. It has 500 LEED AP (Accredited Professionals) employees in all fields. Cushman Wakefield has 71 LEED AP professionals and 100 LEED GA (Green Associate)-certified employees, mostly in property management. Over the next two years, the company plans to train 80 managers through the Urban Green Council’s GPRO courses.

 

 

Source: National Real Estate Investor