Green Leasing Becoming More Collaborative

November 18, 2022 • Stephanie Oppenheimer

It’s been estimated that commercial real estate drives almost 40% of total global emissions, and as decarbonization efforts have grown, so have the number of programs and regulations designed to drastically reduce carbon footprints. 

To help the effort gain ground, the Institute for Market Transformation (IMT), a non-partisan nonprofit organization, was founded in 1996 to co-create and deploy public policy and business practices that drive widespread market action toward low emission and sustainable buildings. 

For years, one of the largest barriers to green buildings was that traditional leases were, essentially, a split incentive, where one party pays and the other benefits, explains Margaret Lo, director of business engagement for IMT. Traditional lease terms, for example, may require landlords to hardwire lights to remain on or provide HVAC even if leased spaces are unoccupied. The result can be shocking. When occupancy during the pandemic fell by as much as 95%, building energy use dropped by just 10% to 20%, according to a study conducted by Johnson Controls.

Collaboration Over Antagonism

“Green leasing provides a path toward collaboration instead of antagonism,” Lo said. “Both parties prioritize goals they want to mutually achieve, and there’s more communication, collaboration and flexibility. Finally, there’s an opportunity for owners and tenants to work on social impact issues together, whether that’s health, resilience, sustainability, economic inclusion or racial equity.” 

BOMA International released its first “green lease” in 2005, with a latest update in 2018 to provide instructions for writing green operations and management practices into lease agreements, as well as legal language to facilitate ongoing implementation of sustainable building practices. Since then, environmental, social, and governance (ESG) performance and disclosure regulations of existing and new buildings have become the norm. But what’s driving commercial real estate companies to operate within those benchmarks?

Outside of building performance standards, ESG commitments are also now being made part of corporate philosophies. And investors are encouraging those commitments, particularly as green leasing can have a positive impact on the bottom line and net operating income (NOI), according to IMT. Green leases can reduce energy consumption by as much as 22%, providing the leased U.S. office market the possibility of saving $1.7 billion to $3.3 billion annually.

Government, Industry Leaders and Tenants Join Forces

The industry is listening. In 2014, IMT and the U.S. Department of Energy created the Green Lease Leaders program to encourage owners and tenants to align ESG objectives and commitments, and BOMA International serves as a supporting partner of the initiative. The program has enjoyed a 390% jump in enrolled companies, the organizations said, since its founding and has achieved more than 20% growth per year since the COVID-19 pandemic began. 

Ron Becker, senior vice president of operations and sustainability for Brandywine Realty Trust, said he has noticed a green lease revolution during the last six to seven years, as tenants formulate their own ESG goals and demand as much or more from managers and owners. 

“We can’t continue under an antiquated way of thinking, where occupants aren’t ‘allowed’ to touch the thermometer or turn off the lights,” he said. “It’s now a team-oriented game, where tenants have their own goals, and landlords can help them by working together to lower overhead. Similarly, landlords need to grow beyond, ‘If tenants get all the benefits, why would I do it?’ A tenant benefit of a 30% reduction can now be monetized on the rent side, and these realities have helped drive the effort.” 

Interest Rising in High-Performing Buildings

Certifications such as LEED and Green Globes, an online green building rating and certification tool used primarily in Canada and the U.S., continue to play important roles, as widespread adoption indicates a strong market interest in high-performing buildings. Launched in 1994 by the U.S. Green Building Council, LEED (Leadership in Energy and Environmental Design) is a popular green-building certification program that measures buildings’ energy efficiency, carbon reduction, sustainability and other factors. Health and wellness as a component of the certifications has also played a much larger role in recent years, especially as the pandemic forced more focus on indoor air quality and airflow. 

“Certifications help balance our priorities on both earth and occupant health,” Becker said. “Hanging those plaques in the lobby advertise our priorities every time someone walks into the building, and we’ve found real value in that; they know it’s a safe building. From a health and wellness perspective, a Fitwel certification is valuable for occupants, just as a LEED is for the planet.”

Another important change especially coming out of the pandemic and the social justice movement in the last few years—is that the general public expects businesses to do more. ESG investments are rising, particularly as millennials and younger generations put their money where their values are. 

Comprehensive Efforts Needed to Create Changes

“We asked real estate leaders, ‘What do you see as the future?’,” Lo said. “Their answers helped us create the BuildUp 2030 Framework for the Transformation of Real Estate, which reflects shared principles for healthy indoor air quality, community resilience to climate change, diversity within the real estate industry, and sustainability review of the supply chain. We need a holistic effort to create change, and many real estate leaders understand they play an important role.” 

Becker pointed out that implementing policies and transforming buildings isn’t easy. “It’s a big lift, requiring partnerships with many constituents. You can’t turn a ship this big on a dime, but when you see what’s possible when everyone gets involved, it’s a solution worth pursuing,” he said. “We need to look beyond our buildings, too; the socioeconomic value of other aspects of decarbonization are ours to consider.”

High-speed rail, for example, can take thousands of commuter cars off the road, Becker noted, adding that companies can hire from a wider pool of workers if travel is made easier, and more workers can obtain better-paying jobs. 

“We’re connected, and we need to conduct business holistically, instead of in siloed buildings,” he said.

 

ABOUT THE AUTHOR
Stephanie J. Oppenheimer, APR, is a writer and the founder and principal of Skylite Communications, an independent communications firm based in Falls Church, Virginia. She also is a former assistant vice president of communications for BOMA International.