Last week, we launched Part I of our series on achieving the aggressive carbon reduction goals that have been put forth in many commercial real estate portfolios, focusing first on the performance of on-site operators.
This is Part II of the series, where we shift focus to tenants.
Tenant consumption has bedeviled sustainability teams for a long time. On one hand, it must be part of the overall strategy; tenants generally consume around 70% of the utilities in a building.
On the other hand, the landlord has no control over what tenants do. If tenants want to run their systems 24/7 and leave the lights on, the landlord cannot tell them not to.
And so, most landlords have struggled to affect change in this area. Occupancy rates will always be paramount and there’s often concern that advice could come off as having a negative impact on comfort and experience.
But there are two key insights that the most sophisticated owners and operators have picked up on that, when taking advantage of, change the frame of the conversation and lead to meaningful reductions in consumption.
The first insight is that increasingly commercial tenants have their own ESG goals and reporting requirements. Just like the landlords, they need to disclose to their shareholders on their carbon footprint, a sometimes significant portion of which comes from their offices, warehouses and retail locations.
The second insight is that many landlords already have a built-in touch point with their tenants that they’re not taking advantage of. That is, providing monthly tenant utility bills based on submetered usage.
Seeing ESG Through a Tenant’s Lens
Enertiv mostly serves landlords across every property type, from office to industrial, multifamily and retail.
But we also serve large occupiers, who lease space of every variety as well.
Many industrial spaces are triple net leased, and directly metered by the utility (ironically flipping the script and putting the landlord in the position of not having access to data). However, the majority of office and retail spaces are either submitted or billed based on some other methodology, like square footage or RUBS.
In the case of these office and retail spaces, large occupiers are leveraging the Enertiv Platform to process and aggregate their submeter bills in the same way (and for the same reason) that landlords want to aggregate their utility bills.
This utility data, converted into GHG emissions, allows them to track their performance, generate accurate reports to their investors, and create a baseline for their own sustainability teams to work from.
Let’s unpack that a little.
The landlord is paying a vendor to generate monthly submeter bills for tenants. These bills are opaque and generally paid for by the accounting department without much attention to the contents other than the cost.
There’s no way for tenants to aggregate the valuable energy data contained in these bills, especially when they occupy numerous locations, each with different submetering vendors.
And so, tenants end up paying another vendor to provide software that can do this for them without the time and risk of manual data entry.
With all the talk around tenant engagement, isn’t it strange that tenants are being forced to come up with work arounds like this?
Fortunately for landlords, this is the norm and a better process has not become an expectation… yet.
True Tenant Engagement
Once tenants start to see what true support for their ESG goals looks like, it will become an expectation (and factor in leasing decisions) much faster than ordering coffee or booking a yoga class.
A modern experience starts with the bills themselves. This is far too often a missed opportunity to provide ongoing transparency and accountability to the tenants.
For example, we can show tenants how they rank in the building on a square foot basis.
This tenant is paying $5.28 more per square foot than the average tenant! Engaging them could have just as big of an impact on overall consumption as a major equipment upgrade or LED lighting project.
To hammer home the point, present it to them in ways that they can envision. They know how big a home is and how much gasoline they need to fill their car, why not translate their office consumption into environmental equivalencies?
At the end of the day; however, what tenants really need is the ability to easily export their consumption data on demand so they can fulfill those reporting requirements.
Instead of having them go back through email archives and PDF documents, a modern experience allows them to instantly pull up and export their historical data through a tenant portal to their data.
This is enhanced more if submeters are digital and they can drill down on their own consumption patterns, like below.
Providing this level of service makes all the difference. Instead of coming to tenants with generic recommendations that even the most sustainability-minded teams ignore, landlords can come to tenants with specific insights about their usage.
Moreover, by understanding their needs and providing value before asking for anything, owners and operators can create real partnerships with tenants, while giving tenants a very good reason to lease with them.
Other Considerations
Triple Net Tenants
As mentioned, there are instances where the situation is reversed, and tenants are the ones with the utility data and landlords are the ones finding work arounds to get the data they need for ESG reporting. Check out our article on The Triple Net Lease and ESG: How to Bridge the Gap if this is something the portfolio is trying to figure out.
Tenant Billing as a Revenue Driver
Tenant utility billing is not only often overlooked as a critical piece of the ESG puzzle, but as a source of revenue. Enertiv performs an audit of the current billing methodologies and calculations whenever taking over a new property. In a recent example, a landlord was underbilling tenants by over a million dollars annually due to mistakes and miscalculations. This is far more common than most owners and asset managers realize, and one of the easiest ways to increase net operating income.
Real-Time Monitoring + Tenants
To demonstrate that they see the connection between tenant consumption and overall energy efficiency, the New York State Energy Research and Development Authority (NYSERDA) launched an update to their successful RTEM rebate program for projects that include monitoring tenant consumption as well as base building equipment. Stay tuned for Part III in this series, where we’ll cover how real-time monitoring works in the context of ESG 2.0
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