Dan Probst 2015-07-22 17:48:10
Retail landlords—like their shoppers—love a good deal. And lately, those good deals are green: environmentally speaking, and for the bottom line. Capital investments that support retailer mandates for environmental sustainability are paying off, big time. Until recently, industry leaders tended to view sustainable building features as benefitting only the tenant. Today, “green” property investments are commanding top-dollar rents. Furthermore, tenants are demanding investment in sustainable features from their landlords, and may pass up spaces that don’t offer the documented energy efficiency and socially responsible features they seek. When retailers require green features as part of their leasing criteria, landlords pay attention, and buildings go green. Green Space, More Greenbacks From strip malls to shopping center towers to open-air plazas, sustainable space is increasingly preferred by top-dollar tenants, who are often willing to pay more for the reputation and savings benefits that come with it. Real Estate Investment Trusts (REITs) and other stakeholders on the property side are taking note that efficiency initiatives can be an asset at the negotiation table as well as on the long-term balance sheet. As building efficiency technology continues to become more powerful and affordable than ever, signs are pointing tenants toward more environmentally sustainable retail space. At least three large retail landlords—Forest City Enterprises, Kimco, and General Growth Properties—have published inaugural corporate social responsibility (CSR) or sustainability reports in the last two years. What’s more, retail development trends also suggest that demand for green is here to stay. Regency Centers Corp., the national shopping center developer, owner, and operator says that 80% of its projects, including new construction as well as redevelopment, have achieved, or are seeking, LEED certification. The benefits of greening retail extend well beyond the property footprint, according to a 2015 report from the World Business Council for Sustainable Development. The report found that energy savings of 30% from Houston’s commercial sector alone would contribute over half a billion dollars to the Houston economy. In addition, the investment in energy efficiency services could generate an estimated 20,000 new jobs over five years. The Growing Trend Toward Greener Retail Property Whether it means installing remote-controlled lighting fixtures or electric vehicle charging stations, large retailers are clamoring for efficiency in their leased space. An International Shopping Center Council (ICSC) Foundation report detailed how a large US retail property owner and developer had installed energy management systems across its shopping center portfolio, resulting in 20% savings on average. Meanwhile, Regency Centers completed a solar installation in 2011 at its Shops at Saugus in Massachusetts, where solar panels could then supply approximately 65% of the electricity needed to power a Trader Joe’s store at the property. This initiative not only created a new source of income, it also provided reliable, cost-effective electricity for the tenant—demonstrating major benefit to both parties. Wallet-Friendly Green Strategies Rich in ROI, these three strategies are among the most popular and effective for retail landlords seeking to invest in their properties to make them more attractive to retailers with a sustainability mandate: • Easy-does-it retrofits: Lighting is a huge energy consumer, so achieving energy-efficiency points can be as easy and cheap as swapping in LEDs. Going further is smart lighting, complete with occupancy sensors and remote control that can have immediate payoff for minimal up-front investment. This notion expands to HVAC: more precise temperature settings and controls and programmable thermostats can result in powerful energy savings. By undertaking an energy audit, or using a benchmarking system like the “ICSC Property Efficiency Scorecard”, building owners can uncover all the hidden opportunities where energy is wasted, as well as how this translates to savings—information that, when acted upon, may well come in handy when negotiating higher rents (http://icscscorecard.org). • Smart building management systems: Smart building technologies are a high-value sell, automating many building operating systems and allowing for the use of smart building management systems that provide real-time data, analytics and facilities management to maximize energy efficiency. With the ability to pinpoint building equipment problems quickly, a smart building management system can yield energy savings from 10 to 25%, as well as boost tenant satisfaction with a more comfortable indoor environment. International shopping center operator Westfield, for example, uses a smart energy management system that is expected to reap at least 5% annual savings at each property. Landlords can leverage this kind of technology at the negotiating table, too, trumpeting the fact that tenants will be occupying a high-performing, productivity-oriented retail space. • Alternative energy matchmakers: Do the company's properties have a high capacity for solar power? Or are they rich in wind? Large-scale onsite clean energy installations can provide a powerful return on investment—when undertaken carefully. For instance, Kimco installed six solar power rooftop generators in New Jersey, enabling it to generate income on the sale of the power as well as collect income on the sale of renewable energy certificates under various state incentive programs. Is utility procurement a worthy option? While the options can be complicated, alternative energy matchmaking services can help connect major property owners with alternative energy providers to work the utility market in a landlord’s best interest. • Green Financing Options: In addition to the technology itself becoming cheaper as use becomes more widespread, various financing options are available to fund efficiency improvements. Take energy service agreements, which can be structured to reward companies for reducing energy usage. Or consider the $230 million program funded in part by the US Department of Energy that encourages businesses to install electric vehicle charging stations. Many federal and state incentive programs support a range of efficiency measures, and specialized facilities management consultants can help landlords explore their options. The key is to become informed on the options for any given location, decide which initiatives will be most valuable to long-term stakeholders, and then—and this part is critical—share the information. When landlords and REITs can effectively communicate the full range of any given property’s sustainability perks—whether it is peerless transparency in energy use reporting, clear support of a corporate sustainability reputation, or simply major savings on annual bills—they can improve tenant savings, satisfaction and public profile and thereby drive up property value for the long haul. To aid in this effort, the Retail Industry Leaders Association has compiled a “Retail Green Lease Primer” (http://bit.ly/1JTOM9a) to encourage efficiency in leased retail space with deal structures that incentivize energy efficiency for both parties. Experts also recommend weaving in sustainability and efficiency protocols as part of the building orientation. Dan Probst, Chairman of Energy and Sustainability Services, JLL, focuses much of his work on aggressive 2020 sustainability goals, counseling CEOs, CFOs, and real estate executives on sustainability, building automation, and related issues.
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