It's not uncommon for tenants and building owners to dance around the subject of energy efficiency, looking for the other to take the first step in making the building more energy efficient. The complex nature of these relationships and differing responsibilities only complicate things further.
According to the Department of Energy (DOE), leased spaces in the United States currently consume 2,350 trillion BTUs of energy and account for more than 490 million metric tons of carbon emissions each year.
From these numbers, a 20 percent cut in energy use in leased retail, warehouse and office spaces could annually save:
- 940 trillion BTUs of energy (roughly the yearly electricity consumption of Mexico)
- 190 million metric tons of CO2 (equivalent to the emissions from 370 billion miles of car travel)
- $5 billion in expenditure
There is clearly value and a need for commercial buildings to adopt energy efficiency practices.
Historically, various challenges have kept tenants and owners from diving in to energy efficiency.
1. A typical lease arrangement in a multi-tenant space means neither owner nor tenant has complete control over energy usage. As a result, reducing consumption requires complex and effortful negotiations between the two parties—so it often never happens.
2. The ‘split-incentive’ problem is a particular example of the stalemate preventing tenants or owners from going ahead with energy efficiency investments. The split-incentive is the financial disconnect that happens when the party spending money on improvements is different than the one benefiting from the resulting energy savings.
3. Many tenants—as well as owners and brokers—are simply unaware of the benefits and opportunities energy efficiency technologies in leased spaces can bring.
4. In master-metered buildings, you can’t get tenant-specific energy data, so it’s impossible to measure and therefore demonstrate the benefits of efficiency improvements in each space.
So how could the commercial real estate and energy efficiency industries help deal with these challenges?
Improve lease language.
‘Green leases’ using energy efficiency–aligned language can mitigate the split-incentive problem and help tenants realize real financial benefits. Industry trade organizations can help improve energy efficiency literacy among all stakeholders by publishing case studies to highlight the benefits and market opportunities of green leasing strategies.
Of course, many companies already recognize the ways in which energy efficiency can improve their bottom line. There’s certainly room to show even more tenant businesses how energy efficiency can reduce their total cost of occupancy, make their leased spaces more comfortable and attractive, and even improve worker performance.
Understanding the relative costs and benefits of various energy-efficient technologies can be complicated and time-consuming for tenants. They need to understand not only the energy-saving features of individual products, but also how they might interact. Providing online tools and build-out guidance checklists so tenants can easily compare energy efficiency technologies is one way to potentially increase the uptake of efficiency measures in leased spaces.
When each tenant’s energy use is metered separately, it means not only individual tenants pay specifically for their own energy use, but they also benefit fully from energy-saving measures they’ve put in place. This can act as a great incentive to spur even bigger future savings and demonstrates the potential benefits to other tenants.
Today, commercial building stakeholders of all kinds are exploring new ways to improve energy efficiency, both to cut energy costs and to combat climate change. Helping tenants overcome the hurdles holding back their improvement efforts could make a big contribution to cutting both consumption and emissions.
To learn more about how Franklin Energy can grow your commercial real estate program, schedule a meeting with an expert today.
U.S Department of Energy (2016) ‘Energy Efficiency in Separate Tenant Spaces – A Feasibility Study’: https://www.energy.gov/eere/buildings/downloads/energy-efficiency-separate-tenant-spaces-feasibility-study
With years of industry experience, Courtney Wojcik has developed an in-depth understanding of the commercial and industrial segments from a technical and customer perspective. As a Program Manager, she oversees various aspects of program operations ranging from processing and field work to marketing and contract management. She is responsible for providing strategic direction and leadership to program staff to creatively meet the goals of the program. She is a Certified Energy Manager and holds a bachelor's degree in business management from Concordia University Wisconsin.