Property owners say savings can be key tipping point to tenants
Sleepy Hollow Management Co. of Santa Rosa has found that overseeing energy usage helps the buildings it manages, such as Energy Star-labeled Fountaingrove Corporate Centre in northeast Santa Rosa, keep and attract tenants by lowering the utility-bill component to their occupancy costs.
Building energy ratings are increasingly essential for real estate portfolio profitability amid high vacancy rates and slow net space absorption. Next year, benchmarking nonresidential buildings against the U.S. Environmental Protection Agency's online Energy Star Portfolio Manager and a forthcoming California standard will be required to close certain real estate transactions, as called for under Assembly Bill 1103.
"Energy is the single largest expense of a commercial multitenant office building," said property manager Susan Lyon of Sleepy Hollow.
Nationwide, utilities account for nearly 24 percent of total building operating expenses in suburban office markets such as those in the North Bay, according to a new study from the Institute of Real Estate Management.
Sometimes, as little as 10 cents per square foot per month in rent on a long-term lease can spell the difference between a tenant's choosing one building over another, according to NAI BT Commercial agent Paul Schwartz. Also, lower utility expenses can boost net operating income, an important metric in the valuation of a property for sale or refinancing.
"If landlords can save 10 cents a square foot on operating costs and offer space at a lower rate, it puts them in a favorable position," he said.
Retrofitting lighting at Fountaingrove Corporate Centre, a 60,400-square-foot, 23-year-old office building, reduced electricity usage by 15 percent and was tied to a 4.5 percent reduction in operating expenses, according to Ms. Lyon. Existing fluorescent fixtures were replaced with high-efficiency T8, fitted with two tubes instead of three, reflectors and electronic ballasts.
There are 32 Energy Star-labeled properties in the North Bay, totaling 2.68 million square feet, according to the program's online directory. Buildings need a rating of at least 75 in a given year to qualify for a label.
The call for ongoing benchmarking of buildings has become more prominent recently as government and private analysis has found that buildings certified under a green building rating system may be end up being energy hogs and that the California Home Energy Rating System, or HERS, may not be accurate for large commercial buildings.
The U.S. Green Building Council last year found in a sample of 121 Leadership in Energy and Environmental Design-certified buildings that 53 percent couldn't earn an Energy Star label. The council last month launched a Building Performance Initiative to address that.
At Napa Square, a downtown Napa office and retail building built to meet LEED standards with a very high-efficiency climate-control system, one tenant's interest in a 68-degree office resulted in other tenants bringing in portable heaters, and total building energy use soared, according to Mark Kamrath of Napa-based Bell Products, which installed the system. Bell went back in to install additional climate zones – MK2 Engineering designed the building to accommodate 200 zones – to meet tenant needs and lower energy use.