Tenants Go for the Green

After years of fits and starts, office building owners are finally getting the green message. Just ask Al Skodowski, vice president and director of engineering for Chicago-based Transwestern, which manages a 150 million sq. ft. office portfolio.

Six months ago, Skodowski recalls sitting in endless meetings with asset management groups, facing the same tired question: “What's LEED?” But in recent days Skodowski has observed a turning of the tide. With each passing day, the real estate community is increasingly embracing the Leadership in Energy and Environmental Design (LEED) program and other related green initiatives.

“I've since been back to three of those five groups and they are now saying, ‘OK, we're hearing it from potential tenants, from potential tenant rep brokers, from our owners' rep brokers. What do we need to do, and how do we figure this out?’” says Skodowski.

Until recently, owners had little incentive to invest in greening their existing properties. After all, most leases stipulate the pass-through of all operating costs directly to tenants. Besides, the notion of turning brown edifices into clean, green machines is anything but a new idea.

The U.S. Environmental Protection Agency launched the Energy Star program back in 1992, and the states of California and New York enacted mandatory energy conservation policies in 2000.

According to property managers, tenants are finally driving owners to walk the green talk. Why now? Chalk it up to the one-two punch of increased awareness and rising energy usage, particularly electricity.

Given the U.S. Department of Energy's forecast for electricity use in commercial buildings to increase by 50% by 2030, more tenants are now demanding highly energy-efficient facilities.

For building owners, energy savings are easily quantifiable and go directly to the operating income of the building. That data also gives owners another point of differentiation when the “for sale” sign goes on the front door.

According to a study released this past summer by Bethesda, Md.-based CoStar Group, multitenant Class-A office buildings that carried an Energy Star rating in CoStar's database achieved higher occupancy rates (89.2%) than those without the designation (87.5%).

The report, which covers building performance over the past three years, found that Energy Star buildings posted higher occupancy rates beginning with the fourth quarter of 2004. A similar trend was found for both rental rates and sale prices.

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source: nreionline.com