The commercial property sector has slacked on sustainability, but smart monitoring offers cost savings which could change that
For everyone except Donald Trump – who seems to have buried his head under a rock for the past 50 years – climate change is now an irrefutable fact. Its main anthropogenic (man-made) cause has been identified as rising carbon emissions in our atmosphere, largely generated through burning fossil fuels to produce electricity. Accordingly, the UK government has committed to the nation achieving net zero carbon emissions by 2050.
Commercial real estate is responsible for 11% of UK energy consumption, with offices the most energy-intensive part of this sector. In a private office building, 70% of energy demand comes from the lighting and HVAC (heating, ventilation and air-conditioning) systems. In most commercial buildings HVAC systems run on fixed schedules that do not take account of detailed occupancy information, while lighting does not adjust with ambient daylight and is binary in its operation, either on or off. Furthermore, it only takes a short stroll around any central business district at night to witness the gleaming evidence that individual occupants cannot be trusted to practise energy-conscious behaviour by simply turning off their lights or computers.
Studies suggest that if offices employed occupancy monitoring technologies in their HVAC and lighting systems, they could achieve energy usage reductions of up to 50%. What’s more, this represents a payback period of only a few years on the cost of installing these technologies. With 70% of existing office buildings expected to be still in operation by 2050, this raises the question: why are more commercial real estate assets not using these techniques?
The answer is simple: money! Energy costs represents 1% of a typical business’ operating costs, with rent and building costs at 9% and employee salaries making up the other 90%. Profit-driven tenants simply don’t care about a 50% saving in energy, when that would only represent a 0.5% reduction in overall costs. US academic Dr Pernille Christensen – in her 2012 study Key Strategies of Sustainable Real Estate Decision-Making in the United States: A Delphi Study of the Stakeholder – showed that the leading factors for implementing sustainable change within the real estate industry were competitive advantage in the market and the changing standards for market competitiveness. In other words: “If it increases our profit and we get good PR, we may consider implementing it.”
What about landlords’ responsibility to the environment? Beyond government-mandated design targets, sustainability really isn’t a concern to them either. In the same study, Christensen found that the most important factors in the sustainability decision-making process for landlords were occupant satisfaction and image/branding/PR, while energy efficiency was way down in ninth place. In other words: “As long as we continue to collect our rent and people think we are green, then who cares?”
If a green image and positive PR are important, then surely sustainability benchmarks such as BREEAM and LEED must count for something? The short answer is “yes”; higher-ranked buildings are designed to perform better. But the more realistic answer is “not really”, as the accreditations are largely just another marketing ploy. Just because a building has been designed to meet certain specifications does not mean that upon operation it actually does so. A report published last November by M&G Real Estate, titled Green Buildings: What Are the Financial Benefits for Investors?, showed that buildings in its portfolio with these green accreditations actually generated higher operating costs than those without.
So, onto the optimistic (if still somewhat cynical) part.
The term ‘smart building’ supposedly first appeared in an Iron Man comic in 1994, but the real hero in the tale of real estate sustainability may be a rather more recent arrival on the scene: WeWork. Because its flexible leasing model relies on customer retention, its space offerings need to put user experience at the core of its operations. This is an approach previously alien to commercial landlords, whose main focus has been on long leases, upward rent reviews and ‘greenwashing’ PR. In the wake of WeWork’s success, a panic has rippled through the real estate industry to attempt to gain better insight into occupiers’ needs. Achieving this requires some degree of occupancy monitoring.
To revisit our earlier 90:9:1 model of occupier costs, even a 0.01% increase in the productivity of employees as a result of their increased satisfaction and wellbeing represents a bigger financial return than a 50% reduction in energy. This can be achieved through the insights collected through occupancy monitoring technologies, enabling a space better suited to occupiers’ preferences and needs.
Such insights can also lead to more efficient use of space, creating savings on the 9% rental costs. Yodit Stanton, co-founder of start-up OpenSensors, which helps companies install sensors and analyse the resulting data, says that if the average workstation in central London costs £17,500 a year and the average desk utilisation rate is only 45%, then in an office containing 500 workstations occupancy monitoring enabling 100% desk utilisation could save as much as £5m a year on rent alone. Suddenly this technology begins to look appealing.
