Strategies

To overcome the barriers to greening California’s leased office space, the Alliance’s Advisors recommended the following market transformation strategies. 

Increase Demand-Pull

Encourage organizations that lease significant amounts of office space to establish and adopt green lease criteria, sending a clear signal to building owners and real estate investors that their properties will not be eligible unless they meet these specifications.

Very large tenants such as the State of California and Fortune 500 companies play a significant role in market transformation.  If enough large tenants specify LEED®, ENERGY STAR or other types of green buildings to be a precondition to a leasing decision, developers will take steps to assure that their buildings meet these criteria so that these tenants are not precluded from leasing in their building.

Green Large Portfolios

Leverage the collective market power of large owners and large tenants to accelerate transformation of the state’s inventory through whole portfolio approaches.

Green building market transformation will be led by a handful of market leaders that collectively hold significant market power.  Both very large owners and very large tenants have the power to alter the supply and demand dynamics of the state’s green real estate market.

Employ Incremental Strategies

Enable large owners and large tenants to immediately commence greening portions of their portfolios, developing realistic criteria for various segments of their portfolio.

The path to greening a building can be incremental – the important thing is to begin and commit to the process.  Key market participants should not wait until they can perform whole building or whole portfolio retrofits.  They can start with modest measures while building the capacity to launch a more comprehensive initiative.  Buildings that are difficult or costly to retrofit should consider starting by adopting green operating practices.  Importantly, even buildings of fairly recent vintage can achieve significant incremental energy efficiency benefits.

Leverage Ancillary Markets

Increase the green building value proposition by finding and creating value in ancillary markets.

The role of ancillary markets in precipitating green building market transformation should not be overlooked.  For example, the green building decision may be significantly impacted by the ability of both owners and tenants to reduce their operating risks and access reduced insurance premiums for green buildings, materials and operating practices.

Demonstrate the Green Building Value Proposition

Reinforce the links among green building design and measures, green building market values, owner and tenant operating costs, and tenant workforce comfort, productive and health.

The direct link between energy and water efficiency retrofits and reduced utility costs is well understood.  However, while there is increasing evidence that green buildings are deemed to have higher market values, documented evidence of the full economic benefits of green buildings – through higher capitalized values, lower vacancy rates, and lower operating costs – remains lean.  The higher value of green buildings needs to be continually documented and widely communicated throughout the market transformation process.

  • Green Building Toolkits

  • Green Building Features

  • Green Leasing Report

  • Green Building Toolkits

    The California Sustainability Alliance has developed several toolkits and other resources that aid local governments in planning and implementing sustainable initiatives. These include:

    • Green Leases Toolkit
    • Energy Efficient Financing Calculator
    • Class B Office Improvement Toolkit

  • Green Leasing Report

    In May 2009, the Alliance released the results of a study examining the current state of green commercial buildings in California and challenges and opportunities for the accelerated adoption of green leasing in California’s existing office space.


    Titled Greening California’s Leased Office Space: Challenges and Opportunities, the report provides information to policymakers and market participants about the pivotal role green leasing plays in achieving the resource efficiency, environmental, and societal benefits of green buildings. The report outlines the constraints on green leasing and recommends changes that need to be made to policies, programs, and practices in order to establish green leasing as standard practice in California.

    Challenges

    90% of California’s commercial office space is leased, and the greening of this space is constrained by several challenges, notably:

    • Real estate owners not economically motivated to invest in building retrofits as the financial benefits flow to tenants;
    • Tenants may be less inclined to adopt conservation measures as financial benefits can accrue to other tenants and/or the building owner;
    • Imbalanced benefit distribution or ‘split incentives’ on core and shell retrofits, between the building owner and tenant. These retrofits (usually the responsibility of the owner) often have long financial payback periods. These costs, if they cannot be passed to tenants, discourage the building owner from making such capital investments; and
    • The ever-growing range of standards, concepts and protocols requires negotiating a unique balance of benefits and burdens for each leased property, which consequently adds time and complexity to the lease transaction.


    Opportunities

    Green leasing can be a key strategy for greening existing office space. In order to boost the market adoption of green leasing, the report concludes that owners and tenants who are motivated to find mutual benefits can collaborate to significantly improve the resource and environmental performance of California’s existing building stock.

    The Alliance, in consultation with its Green Building Advisory Committee, recommends a broad range of strategies for accelerating green leasing in California – from establishing consistent statewide standards and definitions of “green”, to documenting and publicizing the costs and benefits of green buildings (also known as the green building value proposition), implementing building labeling, and modifying state and local policies, ordinances and utility programs to recognize the different needs and interests of landlords and tenants under various types of lease structures.

    Green buildings are a growing segment of California’s overall building stock. In late 2008, LEED® and ENERGY STAR rated buildings accounted for 10% of California’s total office space. 6 months later, they comprised 13% of the state’s total office space – a 30% increase. They feature prominently in class A buildings (35% of all class A buildings in California), but implementation in lower grade properties is more limited (class B and C, at 3.6% and 0.2% respectively).

    To download the full report, click here.

    Image source: Thomas Properties Group

    Office space maximizing natural daylighting
    Office space maximizing natural daylighting