Why Commercial Real Estate Owners or Property Managers Should Consider Eco Refurbishments for Commercial Buildings (and how to fund upgrades with no upfront capital or debt)
The road to Net Zero is paved with many challenges and one of these is the rise of carbon emissions from commercial buildings. The International Energy Agency (IEA)’s key findings from its Tracking Buildings 2020 report, revealed that buildings’ emissions rose to 10 GtCO2, despite its dramatic decrease between 2013 and 2016.
The lack of direct investments in eco-friendly building retrofits, implicit government policies on energy efficiency, and dependency on fossil fuel-based sources are the main factors why commercial buildings still, directly and indirectly, contribute to the global CO2 emissions.
Commercial buildings are an untapped source for emissions reduction. To meet the Sustainable Development Scenario or SDS: a 2.5 per cent decrease in energy intensity per square meter (m2) must be achieved by 2030. The key step to achieve this goal is through the eco refurbishment of commercial buildings.
Given that the vast majority of commercial buildings are owned and operated by private investors or investment groups, commercial building owners have a big part to play in achieving these sustainability goals.
But if you’re a property manager or owner of a commercial building or a portfolio of buildings, why should you care about eco refurbishments? Besides ‘doing the right thing’ and helping the world curb is carbon emissions, is it financially feasible to invest in eco refurbishments or energy efficiency upgrades? After all, isn’t the purpose of investing in commercial real estate is to generate a yield through rents?
The simple answer is – yes. Here are some key reasons why you should consider eco refurbishment and invest in sustainability.
Reduce Operating Costs & Create Shareholder Value
- The first hurdle is to change your mindset about eco refurbishments for commercial buildings. Upgrading your buildings to have improved building insulation, high efficiency LED lighting systems, smart building controls, HVAC upgrades are not an expense or cost – it’s an investment.
- Upgrading assets is an investment that improves the building value and grade which creates longer returns to shareholders by improved assets value and reduced operational costs
- Energy efficiency upgrades help building operators reduce their electricity and gas utility costs.
- Energy savings generated by these upgrades eventually pays for itself over time assuming that you fund the project yourself – be it through your capital budget or debt. If you enter in an Energy as a Service Agreement, the upgrades are paid for by the service provider and there are neither upfront costs nor liabilities incurred on your balance sheet.
- When you upgrade building services equipment such as central plant and equipment, not only will your energy costs be lower but typically maintenance costs as well.
- What this means is that your building will be cheaper to run thereby making the building more profitable for you and other investors to keep.
Future Proof Buildings & Avoided Costs
- A key benefit of implementing eco refurbishments for commercial buildings is the opportunity to incorporate the latest in smart building technologies to future-proof your facilities. This not only makes it easier to operate and control your building but it also improves the overall amenity and value of your building – both now and into the future.
- Also, by bundling multiple energy conservation measures in a single project, you can strengthen your business case by factoring in the future avoided costs of replacing aging plant and equipment at the end of their respective life cycles. In many cases, you can bring forward major upgrades to the central plant and make it more financially viable when you consider a holistic project that’s focused on maximising energy efficiency and cost savings across the entire building and not “cherry picking” the “low hanging fruit” or focusing on only a single initiative at a time.
- In other words, if you have an aging boiler that’s reaching the end of its usable life, it would be easier to justify the investment if you include energy savings generated from other lower-cost initiatives within the same project. The Return on Investment (ROI) on some initiatives will compensate for lower return on other initiatives, but as a whole, the project’s ROI will be more compelling. In contrast, it would be much harder to justify the expense of replacing the boiler on its own without combining other initiatives in a single project.
Improve NABERS Rating & Attract higher-paying tenants
- Due to the rise of the global “green movement”, tenants prefer commercial properties with a solid energy efficiency or sustainability rating. An eco refurbishment or energy efficiency upgrade of your building will make your property much more attractive to potential tenants.
- As an example: due to government compliance requirements, a government tenant will not take out a lease on office space unless the building has a minimum of 4.5 NABERS Star Rating. This means that if your building is below that ‘magic number’ then you could miss out on quality long-term tenants.
- Aside from attracting government tenants, you could also strengthen the overall appeal of your property and potentially charge a slight premium if the base building and the space you’re leasing have a particularly strong NABERS Rating (5.0 or above).
If you don’t have the capital budget to invest in extensive building upgrades, you can consider Ecosave’s Energy as a Service (EaaS) Agreement – an innovative off-balance-sheet service delivery model where Ecosave pays for your building upgrades and the energy savings are guaranteed over the life of the agreement period. To find out more about how an EaaS works, click here; you can also watch a case study video to learn more about the EaaS model and read a success story on how the owners of a landmark building in Perth CBD were able to increase their NABERS ratings from 0.0 to 4.0 Stars at no upfront cost to them.
Ecosave can partner with you to implement end-to-end solutions to refurbish and upgrade your commercial building to become more sustainable and profitable. If you’re ready to implement eco-friendly retrofits, set an appointment with us or call us now on 1300 55 77 64.