In commercial real estate, sustainability has transcended buzzword status to become a key indicator and it’s helping to shape the future of the built environment around the globe. As companies in every sector strive to make measurable progress towards Net Zero, decarbonisation has become the starting point rather than the final metric.
Green leases are a growing part of the climate-positive trend in commercial real estate, driving changes that promote sustainability initiatives and yield tangible business benefits for multiple parties. Meeting the objectives of these leases requires far more than lip service; they are designed to hold both property owner and tenant to account and often require demonstrable action.
This is where building analytics software comes in, providing the data and targeted insights that empower building owners and their tenants to meet (and demonstrate) their sustainable leasing commitments.
In this post, we’ll explore the rising trend of green leases and share how firms can leverage the power of building analytics to meet their green lease obligations.
What are green leases?
While there is no generalised benchmark to qualify a lease as “green,” the term is broadly used to describe lease provisions that impose an obligation on both landlord and tenant to reduce the environmental impact of a property. Both parties may be incentivised to improve energy performance, though the provisions most often apply to building owners, who agree to make property-wide improvements that will reduce the building’s environmental impact.
Green leases are surging in popularity at a time when businesses in every sector are trying to eke out sustainability gains wherever possible, including the operational efficiency and carbon footprint of their commercial real estate.
Commercial leases are going green
In a JLL study on ‘Decarbonizing the Built Environment’, researchers found that 42% of investors and 34% of tenants currently implement green clauses in their contracts. Most of the remaining group isn’t far behind; an additional 37% of investors and 40% of tenants intend to implement green clauses by 2025. Per the same study, 73% of investors find that green strategies and certifications drive higher occupancy, higher rents, higher tenant satisfaction, and higher overall value.
And the proof is in the pudding. Asset management group Real I.S. Australia and the Commonwealth of Australia recently extended an existing lease for ten more years, including the addition of green clauses, for an office building in Melbourne. The green lease deal is the largest in the group's history, proving that value is being recognised in sustainability-focused initiatives. Not only are Australia’s green leases driving down operational costs and carbon emissions, but green-certified buildings in APAC are also fetching up to a 20% rental premium.
In Singapore, 100% of the tenants in Lendlease’s malls are on green leases as part of their drive toward Absolute Zero Carbon by 2040. In London, the Canary Wharf Group recently signed a green lease with JLL. The Institute for Market Transformation (IMT) estimates that more than $3.3bn in annual cost savings could be gained in the US by introducing green leases to the 2.5 billion square feet of industrial space and 1.2 billion square feet of office space facing lease expirations before 2030.
From investing in smart technologies to embarking on deep building retrofits, property owners are driving down costs and carbon emissions simultaneously. When social impact clauses are incorporated, the value transcends financial returns, creating healthier and more inclusive working spaces that foster community.
Analytics paves the way for eco-friendly leasing
The full potential of green leases can’t be realised without meaningful measurement. Building owners must be able to monitor, manage, and report on sustainability metrics in order to fully understand the impact of green lease clauses and report gains back to tenants. This is where building analytics software like CIM’s PEAK Platform really shines.
PEAK helps property owners and tenants meet their green lease obligations by way of reduced energy consumption, extended equipment lifecycle, sustainability rating improvements, and enhanced indoor environment conditions.
Reduced Energy Consumption
Executed properly, green leases can slash utility expenses without compromising tenant comfort and can dramatically reduce capital expenditure for property owners looking to extend their equipment lifecycle. Green lease provisions often indicate specific energy consumption targets or improvement margins—numbers that require diligent benchmarking and record-keeping. The gains also extend to the prevention of ‘energy drift’, which refers to the gradual loss of equipment efficiency over time.
At one Grade A office asset in Glasgow, the PEAK Platform triggered a series of alerts when a number of WC extract fans and fan coil units ran overnight unnecessarily. After PEAK generated related actions, the on-site FM discovered that several time zones had not been correctly set, prompting the extract fans and two main AHUs to run at 3:00 a.m. This seemingly simple corrective action saved the plant 33% of their overall energy usage—a massive win for the building’s sustainability and cost efficiency.
Through constant efficiency monitoring and reporting, building analytics provides a shared understanding of a building’s energy (as well as gas and water) consumption. The resultant benchmarking allows for further refinement of green lease provisions in future and provides a firm basis for sustainability claims on the part of both tenant and building owner.
Sustainability Rating Improvements
Reduced energy consumption and increased sustainability ratings are closely intertwined. Improving a building’s NABERS rating is one of the most direct ways to ensure progress toward Net Zero in leasing provisions, as NABERS employs standard efficiency metrics to compare apples to apples.
CIM customer LaSalle reduced annual energy consumption across seven sites by 874 MWh compared to a 2019 baseline—the equivalent of 900 tonnes of carbon dioxide. Over the same period, LaSalle’s Queensland property Transport House underwent a refurbishment to improve a zero-star NABERS rating to 4.5 stars, a jump that was supported by PEAK’s deployment.
At Kyko Group’s 99 Elizabeth Street, PEAK helped the team exceed their target 4.0 NABERS rating by 1.5 stars for a final 5.5-star NABERS rating. This was on top of a 13.6% reduction in base building energy consumption, despite increasing occupancy and an average 89% thermal comfort rating. With no CAPEX investment, Kyko Group was able to achieve these results through data-driven monitoring and equipment optimisation.
CIM’s PEAK Platform ensures rapid progress toward NABERS and other rating targets thanks to its always-on efficiency monitoring. PEAK won’t just flag inefficiencies; it gives on-the-ground teams the information they need to address them.
In Australia, it’s not uncommon to see green lease terms that specify a minimum NABERS rating. With rating systems like BREEAM and LEED gaining traction abroad, the tangible benefits of higher sustainability ratings are no longer confined to Australia. These ratings now significantly increase property value and attract premium tenants on a global scale, while CIM’s PEAK Platform helps track progress and immediately identify compromising faults.
Modern tenants want more than office space; they want sustainable environments that support their values. Analytics software ensures that tenants’ needs are proactively met, resulting in higher satisfaction rates and fewer vacancies.
When JLL analysed leasing activity for new office buildings in Central London, they found that those with a BREEAM rating of ‘very good’ or better yielded higher rents than those with no BREEAM rating. Over the last three years, this rental premium averaged around 8%. Their report also showed that Grade A buildings with an A or B EPC rating achieved a premium of 10% over comparable offices with lower ratings during the same period.
In other words, there is a straight line from green lease requirements to high tenant satisfaction ratings, increased rents, and lower vacancies. Through detailed operational monitoring, PEAK helps ensure that while energy consumption declines, tenant satisfaction soars higher than ever.
The rise of green leases is part of an undisputed sustainability movement in commercial real estate. As the global commercial property market leans heavily toward climate-positive initiatives, it is paramount for building owners to harness the automated fault detection and diagnosis capabilities of software like PEAK. In so doing, they can ensure adherence to green lease commitments and future-proof their assets in the face of emerging market trends.
Learn how CIM’s PEAK Platform can deliver building analytics data that supports your green lease agreements. Click here to watch a demo of our innovative platform.