Going “Green” Is Profitable For Commercial Landlords & Tenants in California

Every commercial landlord in California should consider greening their inventory because soon all tenants will expect it and it makes economic sense.
By: Thomas Gottberg
 
May 16, 2009 - PRLog -- A survey done for Collier’s International revealed that 91% of the commercial tenants surveyed preferred to locate in buildings considered “green.” Additionally, 94% of those surveyed believe sustainability is an important future component of good business practices. The survey further revealed that 63% said they would be willing to pay a premium to occupy green space, with 14% willing to pay more than ten percent extra. Tenants clearly understand that green buildings have value and provide energy savings.


Business owners are also starting to understand the benefits of working in a greener environment because it enhances employee efficiency. Numerous studies continue to support that a healthy environment increases productivity, employee morale, and results in less absenteeism. A study done in Orange County reported a 20-26% increase in production simply because of more indoor sunlight.   Another study done in Australia reported that optimal indoor environmental quality increased workforce productivity by a full 30%.

The question now is—why don’t more building owners considering going green? If going green attracts more tenants, it makes financial sense that every commercial property owner with a vacancy problem would at least consider the idea. However, the reality of going green is much more complicated.  It appears that given the current economic conditions, most property owners are unwilling to risk spending money to make a building more energy efficient or environmentally friendly if they are not completely positive it will secure a tenant for their vacant space.

As a commercial real estate broker for over twenty years, and as a commercial property owner myself, I understand that sometimes an up-front investment is necessary to achieve desired results.   Committing to a green retrofit or renovation to attract a tenant appears to be a risk given the current economic conditions.  However, more and more evidence is proving that the building owner that can offer the most green benefits will not only secure a tenant in a shorter time, but will also retain that tenant for a longer period.   Office vacancies here in the Coachella Valley are pushing 30% and with tenants having a wide variety of vacant buildings to choose from, landlords are going to find the need to offer more value to fill their vacant space.  Unfortunately, a common reaction to a long-term vacancy is that the landlord believes that drastically cutting the rent is the only option. That action usually causes the rental market to decline and many times is the catalyst for a blood bath in the overall leasing market.

While cutting the rent is always a possible solution, there is an alternative.    Naturally, a business owner who is looking for new space to locate his or her business will find a low rent to be attractive.  However, now more than ever tenants are taking all their operating costs into consideration.  One of those costs is obviously energy.  If a tenant has the choice between a building with a older HVAC system that is 30-60% less efficient than another space, the tenant will be evaluating that as part of the rent consideration as much as the monthly rent.

Another benefit that tenants find highly desirable is a space that provides as much natural light as possible. A simple and low cost solution is the newer solar tube skylights that offer a large amount of natural light and no heat-gain. For example, an office building built in 1980 in Palm Desert is currently installing solar tubes throughout the entire office area. This will result in natural light all day long without needing to turn on any artificial light.  Not only does it provide the quality of natural light with no heat-gain, energy costs are also greatly reduced. Again, if a tenant has a choice between a building with copious amounts of florescent lights or another which is completely lit inside from natural lighting, that tenant will likely choose the natural light with energy savings.  My personal experience demonstrates that the response from potential tenants is very positive, and this alone might make the difference of a property sitting vacant for some time or getting the building leased in a much shorter time.

What if you have a building with a lease that will expire in less than a year?  Obviously, the time to be renegotiating is now.  Make no mistake, tenants have a lot of options these days.  Many are making the move to other properties for better rental rates along with newer or upgraded facilities that will reduce their operating costs.  As a landlord, it would be wise to consider evaluating your property from a competitive perspective and search for ways to upgrade your property so it can be marketed as both energy efficient and offering a quality working environment.  In this market, it is in your best interest to keep an existing tenant rather than having to secure another tenant and possibly face lost income from a long-term vacancy.  Obviously, if you as landlord pay any of the energy related costs yourself, your operating costs would go down when you green your property. Best of all, you will most likely have a tenant that will not be looking to relocate.

Greening a building is not just a fad that will go away.  Federal, state and city governments are implementing sustainable requirements for new construction nearly every day. Government (GSA) leases are starting to require buildings they occupy be “green” certified.  As of November first 2008, Los Angeles will require all new office buildings over 50,000 square feet to meet LEED (Leadership in Energy and Environmental Design) certification.  The State of California has also adopted a “green” building code.  It is likely that many major companies looking to lease space will also require new space to meet green standards.  In the very near future, any building that is not retrofitted to be more energy efficient will be considered obsolete and therefore much more difficult to rent.

In these economic times, any commercial property owner who wants to locate and obtain the highest quality tenants owes it to themselves to consider the benefits of  “greening” their buildings.  This step just might be the path for quickly finding a tenant when neighboring properties remain vacant.   Even better, in the long run this action just might guarantee that a building will remain useful and profitable far into the future.

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Coachella Valley Green (CVG) is an information gateway to the people, businesses and places that are green and sustainable within the Coachella Valley of CA and beyond--including Palm Springs, Palm Desert, La Quinta and Indio.
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Source:Thomas Gottberg
Email:***@gottgreen.com Email Verified
Zip:92262
Tags:Leasing, Renovation, Tenants, Coachella Valley, Green, Sustainable
Industry:Environmental
Location:Palm Springs - California - United States
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