How to engage with tenants on building improvements and sustainability initiatives
Engaging with tenants about sustainability and energy efficiency is becoming a key priority in the commercial real estate sector, reflecting a broader shift toward environmental responsibility and responding to the evolving expectations of investors and tenants. Strategies for effective tenant engagement can lead to more sustainable and energy-efficient buildings, offering mutual benefits for both tenants and property owners. This guidance outlines practical steps for real estate managers to enhance property appeal and operational efficiency through collaborative efforts with tenants, focusing on shared goals for sustainability and energy management.
Why tenant engagement should matter to real estate managers
What makes a corporate tenant happy? Besides the obvious decision factors (cost, geography, upkeep), tenants are increasingly looking for properties that take sustainability and energy efficiency seriously.
Investors are paying attention to the stated climate emissions goals of companies. A recent study by Harvard Business Review found that 80 percent of interviewed investors wanted to see Scope 3 emissions included in the new SEC climate disclosure guidance (the final ruling only mandates Scope 1 & 2 emissions for major public companies).
If tenants are getting pressure to reduce Scope 1 & 2 emissions from investors, it means they will look to building owners and managers to provide energy efficient buildings. One key ESG rating system for companies is GRESB, which awards points to companies for:
Having tenant engagement programs to support utility use efficiency
Sharing utility data/analytics to tenants
Have a data-based, defined net-zero plan
Making building system efficiency improvements
Implementing an energy savings program to upgrade outdated equipment can keep tenants happy by both lowering utility bills (efficient equipment uses less energy) and renting from an sustainability-minded facility manager or REIT.
To achieve this, REITs should install energy monitoring meters across their building portfolios. These give asset-level data that current utility meters cannot provide. Implementing these types of programs also makes your building more competitive for subsequent tenants, because these programs reduce overall operating expenses.
Benefits of good tenant engagement via energy efficiency upgrades
Successfully upgrading a building’s equipment requires access to robust, granular data about the building’s energy usage through a smart metering system.
The immediate benefit of improved usage monitoring goes to the tenant first through utility bill savings, which requires the building manager to take the data from the smart metering system and make appropriate adjustments to existing equipment.
Long-term, building owners benefit through better data for sustainability reporting, a higher GRESB or other ESG score, an increase in property value, and increased appeal to tenants and investors alike.
The standard approach to energy efficiency upgrades—where either the building owner is expected to pay up front and passes down costs to tenants—often doesn’t pan out because of an incentive mismatch.
Working with an Energy-as-a-Service (EaaS) provider like Redaptive can help alleviate the challenges of incentives. If a project opportunity arises, Redaptive can help plan, finance and implement, requiring no upfront capital from the building owner. Learn more about EaaS energy efficiency financing here.
EaaS in action
WPT Capital Advisors, a real estate investment firm focused on the industrial building sector, needed to gain access to their energy consumption data for ongoing GRESB reporting. But as is the case for most industrial owners, getting energy bills from tenants was taking months and often yielded inconsistent data.
Redaptive installed energy meters across 16 locations in 5 months so WPT could automate collecting and aggregating consumption data required for GRESB reporting, giving time back to partners and ultimately reducing data collection costs.
“This real-time solution also identifies inconsistent consumption patterns and automatically sends alerts that ultimately create safer, healthier buildings by identifying leaks and building systems that are running at off-peak intervals.
As an added benefit, we are using this data to engage with our tenants to promote investments in capital projects that decarbonize our buildings and assist our tenants in reaching their sustainability goals,” said Spencer Gerberding, partner of Asset Management & Sustainability at WPT Capital Advisors.
Building owners need to collaborate with tenants in order to execute their sustainability goals. Improving energy efficiency will help drive tenant engagement, improve occupancy rates, and improve your sustainability profile with investors.
Learn how Redaptive can help create a scalable tenant engagement program to drive economic outcomes for tenants and property owners.
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