Green Leasing Provides Value to the Landlord and Tenant

Helping Small Businesses

Green leases are not just for large companies. Small Cleveland-based landlord NEO Realty Group has used energy audits and green lease terms as a tool to improve its existing buildings without raising rents on tenants. In one instance, NEO Realty Group reduced utility expenses by 44 percent for its tenant, the American Cancer Society, utilizing green lease terms to recoup costs during a two-year period. (Read the case study.)

Green leases can be especially impactful for small and medium building owners and small businesses. And it’s important to recognize this, because according to the Washington-based U.S. Energy Information Administration’s most recent Commercial Buildings Energy Consumption Survey, 88 percent of commercial buildings are smaller than 25,000 square feet and account for more than 25 percent of all commercial floor space in the country. With tighter margins than a larger corporation that owns or occupies a Class A building, reducing utility expenses and improving tenant retention through the low-cost implementation of a green lease can go a long way to improving the bottom line.

To help small businesses develop green leases and reduce their utility costs, IMT and the Council of Smaller Enterprises (COSE), Cleveland, recently completed a two-year initiative in the city of Cleveland called the Cleveland Energy-Aligned Leasing Program. The overarching goal of the program was to improve the small business community’s understanding of sustainability through a combination of education, energy audits, green lease resources, and financing options in a bundled program package. The effort could then be used as a blueprint for cities and local business communities across the U.S.

Throughout the initiative, IMT and COSE engaged more than 60 owners and tenants representing more than 7 million square feet of space to help them pursue energy and water-saving solutions through stronger collaboration. It culminated in Making Efficiency Work for You, a step-by-step guide to implementing green leasing for small business owners; the guide includes green leasing frequently asked questions, sample green lease clauses, tenant operations and buildout guides, as well as several case studies.

Looking Forward

During the past few years, IMT has seen landlords become increasingly sophisticated in their approach to energy management and sustainability. Landlords are adapting to tenant demand to have efficient buildings through strategies like green leasing, as well as by investing in higher performance core building systems. However, another area that remains a difficult nut to crack is tenant engagement. Currently, lack of awareness and weak demand for energy-efficient spaces is preventing thousands of companies from unlocking potential savings.

Tenants use more than half the energy consumed in leased spaces across the U.S. Often this energy is wasted by inefficient operations and equipment. Achieving a 20 percent reduction in energy use in America’s commercial, retail, industrial and office buildings would save $5 billion annually, according to the Department of Energy.

To that end, IMT; the Retail Industry Leaders Association (RILA), Arlington, Va.; and the International Council of Shopping Centers (ICSC), New York, just launched the Landlord-Tenant Energy Partnership, which will work with tenants across the U.S. to spread best practices in green leasing, energy policy, and building operations together to reduce energy consumption in multi-tenant buildings.

RILA and ICSC, which represent major retail tenants and landlords, respectively, will help to continue to drive cutting-edge energy-management practices in buildings (including green leasing). The partnership has also established an advisory group of representatives from some of the largest companies with national real-estate portfolios, including CBRE, Kimco Realty Corp. and Nike.

Participants will receive expert one-to-one guidance to implement energy efficiency during site selection, lease negotiation, fit-out and operation. This will include things like metering options to resolve tenant-landlord-utility disconnects; data sharing between owners, tenants, and facility managers to drive ROI calculations and facilitate investment conversations; and financing efficiency upgrades, including innovative tools such as green bonds.

Landlords and tenants need clear and easier pathways toward making more substantial energy retrofits and improvements to their buildings. IMT is dedicated to helping provide that pathway and its representatives look forward to connecting with those in the commercial real-estate market who want to reap the benefits of energy efficiency.

About the Author

Andrew Feierman
Andrew Feierman works on the Washington, D.C.-based Institute for Market Transformation’s market engagement team, where he helps the private sector access and utilize energy-efficiency best practices for commercial buildings.

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