Improving Energy Efficiency Boosts Office Building Value, Performance

Class B and C office buildings can be improved with relatively simple, lower-cost measures to improve performance, boost property values and become more competitive with Class A space, the Urban Land Institute said.

“In a changing market with evolving tenant preferences, new energy-efficiency technologies and continued policy action to reduce building emissions, buildings implementing energy efficiency can stay ahead of the market,” said ULI Center for Sustainability and Economic Performance Executive Director Billy Grayson.

ULI’s Unlocking Hidden Value in Class B/C Commercial Buildings report explores the opportunities and challenges associated with incorporating energy-efficient retrofits and upgrades in buildings that tend to be bypassed for such improvements due to skepticism about payback schedules.

The report noted three disadvantages that keep Class B and C property owners and managers from fully embracing green building practices:

–Information constraints: Stakeholders are often so busy with daily operations they do not keep up with energy-efficiency best practices;

–Resource constraints: Class B and C buildings rarely have staff dedicated to energy-efficiency efforts; and

–Funding constraints: Budgets and capital planning for these buildings frequently are not large enough to support significant energy retrofits with large up-front costs.

But despite these obstacles, ULI reported a strong business case for making the investments; Class B and C properties could save nearly 15 percent on energy costs by employing low-cost to no-cost measures and 35 percent or more through larger expenditures that would be paid back within three years, the report said.

“Although Class B/C office tenants may not pay higher rental rates, owners are more likely to lease more quickly than competitors and retain those tenants during lease renewals when a space is more sustainable and energy efficient,” the report said. “For the ambitious owner looking to reposition a Class B or C office asset into an A property, incorporating energy-efficiency measures into renovations provides an opportunity to add long-term value via new building systems and improved operational efficiency.”

The report also said local building-performance ordinances are expanding beyond the largest commercial properties to include smaller buildings that often fall into Class B and C categories, making green investments necessary for regulatory reasons as well as lucrative for economic reasons.

“While not necessarily the main driver for tenants, sustainability is one more tool in your toolbox when it comes to getting a lease signed,” said Brenna Walraven, CEO with Corporate Sustainability Strategies Inc., Huntington Beach, Calif.