October 11, 2017
“The choice before us is simple. Will we continue to subsidize the dirty fossil fuels of the past, or will we transition to 21st century clean, renewable energy?” – Elizabeth Warren
Commercial building owners have a tough job. They are not only responsible for mitigating costs associated with a property’s operating expenses, they are also accountable for any waste their building is responsible.
A building owner operates in an extremely challenging world and is required to have a diverse set of skills. Have a conversation with one and you’ll quickly find out that they know the ins and outs of any of the following categories:
- Building Code Compliance
- Lease Term Agreement Association
- Risk and Liability Minimization
- Building Maintenance
- Insurance Diversification
- Tenant/Occupant Satisfaction
- Energy Efficiency
- And, all in all how to make a— Profit! Profit! Profit!
Making a profit is a true incentive for successfully managing a commercial property portfolio.
With every responsibility faced by a building owner, energy efficiency usually falls towards the bottom of the priority list. However, some would beg to differ.
In this blog, we share the challenges we have discovered to be experienced by commercial building owners. We also share our insight to helping alleviate the knowledge gaps of rising energy costs and effective management of property. Our objective is to demonstrate how important it is to pay attention to and implement the technologies that can help support building owners in their pursuit of the successful management of their property portfolio.
The Revolving Door – Challenges faced by Building Owners
“Energy conservation is the foundation of energy independence.” – Tom Allen
There is no shortage of issues experienced by any sector. For property owners, in particular, it seems as if the problems happen in revolving door fashion.
The challenges faced as a property manager have not changed over the years. However, what has changed is the cause of the problems they have. Here are just a few of the universal issues facing property managers today:
The ever-rising costs of building operations, staffing and services, tenant expenditures, and leases.
Operating Costs – Increasingly rising energy costs are affecting every property manager of every type of building. Higher direct costs can be seen in their utility bills. Increased indirect costs show up in higher prices for just about everything they purchase, from cleaning agents—to light fixtures—to construction materials. Energy saving initiatives should be a priority, as well as a strong energy maintenance program to make sure all their heating and cooling systems are in top-notch running condition.
Staffing/Services – It is a constant challenge to find, train, motivate and keep a tenant-focused staff. Excellent training and competitive wages can go a long way toward retaining them. Letting them know they are goodwill ambassadors and they are an important part of the operation is key.
Ask for their input and expect them to take ownership and be accountable to policies and procedures in place. Staffing problems can also spill over to the services you contract out, such as janitorial services. Unions have become more aggressive about demanding higher wages and more benefits. When negotiating new service contracts, make sure you look at your historical data and see if there are any potential savings you can uncover and possibly negotiate more satisfactory terms.
Tenants Costs for Multi-Family Property – It is estimated that it costs seven-to-eight more times to bring on a new tenant then it does to renew an existing one, so taking care of them should be top priority. One thing that has not changed over the years is a tenant’s necessity for comfort. They want the heating to work in the winter, the air conditioner to work in the summer, they want to feel secure and they want to have pride in their facility. What has changed, is the amenities tenants want.
Also, tenants are driven by their bottom line, so they are focused on using their space more efficiently by increasing their density through creative floor plans. Other important areas include American Disabilities Act (ADA) compliance and tele-communications/high-speed internet access.
Tenant Leases – Tenant leases have become a huge issue for today’s property owners and managers. The important thing to remember is that landlords drive the lease terms and tenants can be tough negotiators. In most cases, landlords attempt to reduce the rights and options of their tenants, while tenants are looking for more flexibility with shorter agreements (i.e., the ability to sublet or have termination options). The key is to find a middle ground. For new tenants, negotiations may include concession packages for free rent, paid utilities, and improvement allowances.
Building management is a tenant-focused business. The more time building owners spend dealing with a landlord’s tenants/staff, developing and implementing programs that will enhance the tenants’ overall experience is their best bet. It is difficult, though, because their true master remains their bottom line. This is where technology can step in to help.
Mitigate Your Costs – Technology Can Help
“If conservation of natural resources goes wrong, nothing else will go right.” – M.S. Swaminathan
The return on an investment in energy efficiency and renewable energy depends on a building’s performance and design expectations. Whether you are a building owner or a utility company investing in efficiency, these types of investments can maximize energy savings and minimize frustration.
Building owners CAN be successful in their attempts to increase performance by keeping these best practices in mind:
- Determine what energy sources need to be measured and how best to measure them to characterize building performance;
- Calculate the expected energy and cost savings; and,
- Compare expected performance with measured performance to diagnose problems and identify additional savings opportunities.
Leading Technologies for Energy Savings in Commercial Buildings
“Climate change is no longer some far-off problem; it is happening here; it is happening now.” – Former President Barrack Obama
One of the easiest building energy equipment upgrade is LED lighting. It requires little upfront investment, and shows almost immediate returns. New lights can be installed overnight without causing disruption to tenants/occupants. In the United States, the cost of LED lighting has grown increasingly more affordable, at least partly because it is being made by inexpensive labor in China, said Steve Gossett Jr, CEO of energy management company SCIenergy.
Apparently, “Lighting gives some of the biggest bang for your buck,” according to Mick Dalrymple, Senior Sustainability Scientist at Arizona State University’s Global Institute of Sustainability.” Rebates tend to be high, which makes the lights almost free.”
A California Energy Commission Study released in April found that LED upgrades cut energy use from lighting by 50 percent without forfeiting light levels or tenant/occupant satisfaction. The study also estimates that savings will be two times higher by the year 2020, when LED lights become even more efficient.
Adding interior and exterior shades is also relatively low-cost and effective. Another California Energy Commission Study from December found that adding exterior shading systems in sunny climates yielded net zero energy performance levels and significantly reduced demands for electricity during peak periods of the day. Day-lighting (such as windows and skylights) instead of electric light during the day also improved energy efficiency.
Other simple fixes include broadening the range of temperatures inside a building, scheduling reduced services (such as less lighting) when buildings are unoccupied and reducing simultaneous heating and cooling, said Portland State University’s Mithra Moezzi, a principal researcher for the UC Davis and CARB study.
Rising Energy Costs is Cause for Action
“I ask citizens and governments everywhere to do their part by conserving energy and reducing the use of fossil fuels for the good of the world community. This is our duty to those who share this world with us and to those who follow us wherever we see a threat to our environment— we must take action.” – Arnold Swarzenegger
Owners of commercial office buildings today face energy costs that appear to rise continuously, creating very difficult challenges when managing the facility budget. Ancillary costs of building maintenance products and services are also rising proportional to energy as vendors pass on high fuel costs to the consumer. Hence, executives of owner-occupied and tenant-occupied buildings must take new, creative steps to maintain energy costs for a healthy and sustainable business.
Energy use in buildings has been a concern in the United States since the oil embargoes of the 1970s but has gained new currency in recent years because of rising costs and an interest in limiting greenhouse-gas emissions. We have written an entire blog on the embargos. Check it out here: Taking Data’s Lead So That We Do Things, Good Things
The Department of Energy (DOE) tracks trends in energy usage. Its 2009 Buildings Energy Data Book, which has data through 2006, notes that the dominant uses vary between residential and commercial structures (DOE, 2009). The dominant uses of energy in the residential sector are ambient space heating (about 26 percent) and cooling, water heating, and lighting (each about 12–13 percent). In commercial buildings, lighting is the dominant category at about 25 percent, but space heating, cooling, and mechanical ventilation together account for more than 31 percent. DOE also estimates emissions of carbon dioxide (CO2), a greenhouse gas, from burning fossil fuels to generate energy (mainly natural gas on site and natural gas and coal for electricity production). They track the energy-use numbers closely. All told, building CO2 emissions in 2006 accounted for 38 percent of total US CO2 emissions—20 percent contributed by residential buildings and 18 percent by commercial structures.
The Challenges Also Come from Within
According to a Senior Advisor for building science at the Lawrence Berkeley National Laboratory, “We know what the issues are for energy sustainability and we know how to solve them. It is possible to get buildings to net zero or near net zero, but on average businesses still have a long way to go to improve efficiency. Energy use in buildings is a $400 billion to $500 billion a year problem.”
Wondering why this would be a problem, we discovered others had already answered it.
A recent behavioral study by the University of California Davis and the California Air Resources Board (CARB) concludes that low-cost changes in building operations can save from 5 percent to 30 percent of buildings energy usage, but often these changes are not made because of the desire to change is not present by building owners.
If energy conservation saves money, what is preventing upgrades and retrofits of existing commercial buildings?
If energy efficiency is a complex societal problem, it needs a multi-faceted approach. Policy, rate structures and utilities all make a difference, but in the end, the motivation for change remains with corporate entities and individuals.
Barriers to change may be a matter of the desire to not disrupt business as usual
“The path towards sustainable energy sources will be long. America cannot resist this transition, we must lead it.” – Former President Barrack Obama
Of course, low-hanging fruit may not always be enough. Some retrofits require major investments and disruptions, such as overhauling heating and cooling systems, intelligent monitoring systems, insulation and windows. Predictably, the higher the initial cost and the longer the wait for returns, the less likely a project is to be approved. Heating and cooling systems can last for decades, and many owners and facility managers subscribe to the adage: “If it ain’t broke, don’t fix it.”
Often businesses do not own their buildings, which leads to a split-incentive problem. Building owners are responsible for capital improvements, while tenants are responsible for operating expenses.
Large buildings may have only one meter, making it difficult to correlate energy savings to particular businesses. On the balance sheet, energy efficiencies are often seen as an external cost outside of the core business model, which can push projects to the backburner.
“Projects with six-month payback periods or are cash-flow positive from day one— don’t get done,” said a Marketing Guru at Noesis, a finance platform for energy project developers. The energy upgrade decision process is likened to peace talks, where everyone is talking past each other and little changes.
Without good energy data, it’s hard to know how best to invest in building improvements and navigate the array of energy-efficiency options building owners could implement at different properties. Multiply that lack of information by the many different building designs, ages, and locations involved and the task almost seems impossible. BUT! Now imagine you have good energy data.
With this information, you can confidently invest in energy-efficiency measures for commercial properties because the decisions will be backed by actual energy cost and consumption, enabling you to precisely plan and execute a buildings’ improvements.
Building owners can better prioritize among properties and locations, as well, and explore innovative financing options to fund their property improvements. Data-driven energy upgrades and energy benchmarking are rapidly becoming more mainstream as data aggregation. The sharing of information enables more and more building owners to access their tenants/occupants’ energy-consumption data.
Our Inibii Energy Management Platform is a tool to make the process easier for owners to track their data across their property portfolios, compare their buildings’ energy performance over time, and share that information with other authorized users.
As a standardized process of measuring building energy performance, benchmarking helps building owners and operators identify cost-effective energy upgrades, realize and document energy-and-cost-savings benefits from those upgrades, and communicate these accomplishments to stakeholders. Accurate energy data also pinpoint costly property problems, ranging from inefficient HVAC or lighting systems to leaky building envelopes.
Building owners: be on this positive side of the problem. We can help you find out how. Want to begin a discussion? Click here.
National Academics of Science and Engineering. 2011. Climate Change, the Indoor Environment, and Health, Chapter: 8 Building Ventilation, Weatherization, and Energy Use
Retrieved from https://www.nap.edu/read/13115/chapter/10
Post, Rachael. 2014. Too big to save: why commercial buildings resist energy efficiency
Roth. Bob. 2016. What are the biggest challenges faced by commercial property owners?
Schneider Electric. 2006. Leading Techniques for Energy Savings in Commercial Office Buildings