How collaboration between building owners and tenants can boost sustainability

June 23, 2023

The owner-tenant relationship in commercial real estate has become a critical factor in the sustainability of a conversation. Collaboration can play a role in enhancing operational efficiency and reducing costs, particularly for buildings that leverage a gross lease. By incorporating a comprehensive, shared vision for decarbonisation through the full life cycle of a building’s lease, both tenants and landlords can make even greater strides towards their respective sustainability objectives.

Guy Grainger, JLL’s Global Head of Sustainability Services and ESG explained that,

“amid the current energy crisis and with increased pressure to meet sustainability goals, collaboration between the owner and occupier at an asset level to incorporate energy efficient solutions is critical.”

Some of the most commonly used strategies are green leases, submetering, sharing of consumption data, commitments to protect sustainability ratings, installing plug load control devices or empowering occupants with best-practice education.

In our recent APAC-hosted webinar, Davina Rooney, the CEO of the Green Building Council of Australia, added,

“What we’re seeing with tenants is that their performance is far more linked than it's ever been to the success of their property partners. With Scope 3, people are being told that they are accountable for the emissions of their partners.”

The concept of tenant empowerment might require a shift around workplace occupant behaviours, as CBRE’s Brent Cross suggested in our recent EMEA-hosted webinar,

“To operate more economically and sustainably, maybe we need to work on the cultural behaviours of the occupants and how they adapt and operate in the workspace.”

Many building occupants practise energy conservation at home because it directly impacts their finances. Encouraging this point of view to extend that behaviour to the workplace could change it.

We have already witnessed a notable shift in attitude that presents an opportunity for landlords. Tenants are increasingly receptive to embracing more efficient use of the buildings that they occupy, underscoring the significant opportunity presented by a collaborative approach. In our own commissioned research, we found that 94% of UK decision-makers would accept paying more for a greener office space, with 41% willing to pay between 10% and 14% more.

The green lease advantage

Green leases align tenant and property management interests related to energy efficiency, water conservation and other environmentally friendly practices. According to a JLL survey of sustainability leaders in Asia Pacific, up to 42% of large occupiers have signed leases that incorporate green clauses. The untapped opportunity, however, is significant, with the Institute for Market Transformation (IMT) estimating the U.S. market could reap $3.3 billion in annual cost savings if every leased office building implemented green leases.

Data from CBRE supports the increasing appetite for green leases by tenants. The ‘premiumisation’ shift is seeing more building occupiers move to premium offices, which are typically part of high-value assets with market-leading sustainability credentials. Among other reasons, employers are doing so to attract talent with a focus on employee wellness.

According to Felicity Tregonning, Associate Director of Workplace Strategy at CBRE, the investment is an opportunity to ensure their ESG commitments. She said,

“It’s something that most of these buildings have - green and wellbeing credentials. And, of course, premium offices can also be a tool to attract and retain talent. We have seen a shift in employee expectations of the workplace. Millennials and Gen Z employees, in particular, want to work for organisations that take care of them and their health and these buildings provide an opportunity for organisations to showcase this.”

There are two main benefits to leveraging green leases. First, as an Asset Manager, having premium properties in your portfolio that can qualify for green leases and meet tenant desires is critical to long-term revenue and cutting costs. If you attract an ideal tenant satisfied with the sustainability and efficiency aspects of the building, they’ll likely stay longer and be willing to pay more, so churn costs don’t impact your bottom line. Second, the mutual obligations contained with green leases mean tenants are required to meet strict efficiency guidelines that will ultimately support the landlord’s cost-saving and sustainability ambitions.

Discover how a Brisbane office building, 193 North Quay, increased its NABERS rating from zero to five following the deployment of PEAK - read the case study.

David Walsh
June 23, 2023