The Truth About Green Offices

As a San Francisco-based commercial real estate broker who specializes in helping office tenants create healthier, more energy-efficient work environments, it’s exciting to see the progress we’ve made in moving these issues to the forefront of the discussion.  The moniker “green” has gone from being “hippy”, to trendy, to en vogue, to cliché and now it’s the standard.  Call it what you will, but this framework of thinking is here to stay and will benefit not only us, but generations to follow.

outside

Having said that, and for lack of a better phrase, we need to keep it real and constantly remind ourselves that it’s not the perception of sustainability that matters, but the reality and implementation of it.  To the corporate decision makers that are reading this post, place the health of your employees and the sustenance of our earth first. Healthy employees are intrinsically happy, productive employees, and energy and waste reduction both on-site and within your supply chain directly and positively affects a company’s bottom line; these are facts.  Everyone wins.

I want to share what I feel are the most important decisions you can make when locating and operating your business, from a sustainability perspective.  It doesn’t matter the line of business you’re in, these are principles that can benefit us all.

Location, location, location.

Where you do business is just as important as how you do business.  If an option, give preference to high-density locations where your employees can commute to work via mass transit while eliminating their need to drive somewhere to get lunch or grab a coffee with a client.  Encourage and reward employees who bike or take a bus to work.  There are federal incentives available that can benefit you and your employees such as the Commuter Check program that can save companies up to 10% on their payroll tax expenses while saving their employees up to 40% on their commute costs.

Reduce, reuse, and yes, recycle.

Tearing down the construction of an entire floor in an office tower and building it back up with sustainable materials doesn’t make you “green”.  Too often I see perfectly useful tenant improvements demo’d and sent to a landfill while new resources are acquired and constructed.  Not only does this translate into unnecessary additional expenses for the office tenant, but it puts an unnecessary burden on our earth.  Identify spaces that more closely match your desired configuration, and you’ll reduce construction waste and monetary spending.  They’re out there, it just takes a little more effort.

Think beyond your company.

In addition to making better informed purchasing decisions within your office, are the values and mission of the vendors in your supply chain congruent with your own?  We vote with our purchasing dollars each time we place an order.  You, NOT the supplier, create demand.  Give preference to companies that are also taking pro-active steps to reduce their consumption and waste, such as your office supply vendor.  The market will punish companies that don’t, and reward those that do.  Change starts with you.

Reduce toxicity in the workplace.

Typical office environments have the potential to be highly toxic and can negatively affect the performance, happiness and productivity of your employees.  If you’re a decision maker, you have a responsibility to provide a safe, healthy workplace.  Give preference to properties with operable windows, abundant natural daylight and landlords that use low-voc paints and carpeting.  Segregate copiers in enclosed rooms with adequate ventilation.  Decorate your office with plants that are known to cleanse the air and remove chemical vapors while absorbing carbon dioxide.  Consider purchasing used or refurbished office furniture, as it has already off-gassed harmful chemicals and vapors.

Engage your employees.

The greenest tenant improvements in the world will be ineffective if the building’s occupants aren’t engaged, and whose sustainability goals aren’t aligned with the company’s. How the office is occupied is just as important as how it was built out.   Engage your employees by more than just openly sharing your sustainability plan, but also explaining why certain measures were implemented (i.e. the waterless urinals will save 250k gallons of water this year).  If new technologies have been implemented, explain how to use them.  Reward employees who are proactive in helping the company achieve their sustainability goals.  Make it convenient and easy for employees to recycle.    Provide filtered tap water for employees rather than purchasing water bottles.

Developing a sustainable real estate strategy is really nothing more than developing a smart real estate strategy.  Don’t just “go green” for show, but be sincere in your approach and you will reap the benefits.  The truth is, a green office will yield happier employees while positively impacting your bottom line, so do it right.

Volunteer. Make it count. The U.S. Green Building Council

Anyone interested in learning more about the USGBC’s San Francisco Bay Bridge Branch is invited to attend our monthly leadership meeting:

First Monday of every month:
USGBC – NORTHERN CALIFORNIA CHAPTER
560 Mission Street, 9th Floor
San Francisco, CA 94105

I began volunteering with the Chapter over seven years ago, and it has proved to be the most beneficial and rewarding organizations I could have joined.

Volunteering with the Chapter and getting involved with one of our committees gives you a chance to engage with other like-minded professionals who value sustainability, and want to change and improve how we build, occupy and manage our built environment.  However, it’s more than just networking and making lasting and valuable business and personal relationships.  The members of our Branch’s leadership team are responsible for putting ideas into action that help shape public opinion while educating others about the importance of working in a “healthy building” and reducing our environmental footprint.  We host approximately 10 local community events annually, whose impact is not to be understated as they play a crucial role in furthering green building advocacy while providing educational opportunities for those already in, and outside of our normal sphere of influence.

I look forward to meeting new friends at our meeting and catching up with familiar faces.

Benjamin Osgood
Chairman
U.S. Green Building Council – Northern California Chapter
San Francisco Bay Bridge Branch

U.S. Green Building Council – Northern California Chapter
San Francisco Bay Bridge Branch

Lease Structure Key to Energy Savings

When office tenants pay only for their actual energy consumption, they inherently use less of it. Unfortunately, most tenants in “Class A” buildings have a lease structure called “fully-serviced” which does not account for how much energy each individual tenant uses, and therefore doesn’t motivate them to reduce their energy consumption because there’s no economic incentive.

submeter

Leasehold structures can generally fall into one of three categories:

• Triple Net (NNN):  In addition to paying Base Rent, the tenant is billed separately for property taxes, insurance, maintenance charges, utilities and janitorial services.

• Industrial Gross (IG):  All of the above expenses are included in the rental rate, with the exception of utilities and janitorial, which are paid separately by the tenant. This can also be called “Manufacturer’s Gross” (MG) or “Net of Utilities and Janitorial” (NUJ).

• Full-Service (FS):  In this lease structure, the tenant’s rental rate covers all of the above expenses, and is also sometimes referred to as a “Gross Lease”.  Any increases in Operating Expenses “OpEx” are passed through to the tenant as “Additional Rent”.  So for example, if the utility company decides to hike up the cost of their electricity, the tenants get stuck with the bill and pay according to their pro-rata percentage share of how much space they occupy in the building.

Turn off the lights behind you.  One day when you’re paying the bill you won’t forget! – Mom

So here’s the problem.  In a Full-Service lease, the landlord is not incentivized to implement energy-saving measures since they’re passing all increases through to the tenant.  And the tenant has no reason to try and save energy because doing so won’t reduce their monthly rent.

The logical solution is to sub-meter the tenant’s space so that they’re only paying for what they actually consume, and will realize the economic benefit from conserving energy.  This is much easier said than done, however.  Most Class A buildings simply aren’t designed to sub-meter individual tenant spaces, and most tenants do not have the necessary leverage to get the landlord to agree to pull them off the Full-Service lease.

Commercial real estate firm CB Richard Ellis found that separately metered buildings where tenants pay for what they consume, lower their energy costs on average by 21%.

So what do we do in the meantime while we wait for new buildings to be designed that can address this concern and take advantage of the huge opportunity for mass energy reduction in the workplace?  One option is to seek out buildings that already offer leaseholds on an Industrial Gross basis.  Typically you’ll see this in smaller, older buildings with a lower tenant density.  Or, if you are in an office tower and occupy several floors, you may have the necessary leverage to negotiate a lease that’s net of electric and get the landlord to agree to sub-meter your space.

As a broker, I always give preference to buildings that have leases structured as Industrial Gross.  In addition to the obvious benefit of saving money, I think employees appreciate being engaged and knowing that their energy-reducing actions have a positive impact and benefit.

Smart Office Leasing Strategies are Inherently Green

A skillful commercial real estate advisor approaches each transaction with the goal of obtaining the best deal and terms possible for their client, while also identifying a space that will maximize employee comfort and productivity. The advisor also plays a key role in influencing how the new office is built out and constructed, as well as where the office is located.

Sustainable business practices just happen to exist within the intersection of all of these goals; and if they do not, they should.

There are many opportunities throughout a commercial lease transaction to save the client money, and many of them also have the added benefit of being more responsible decisions, environmentally. Here are few examples of leasing strategies that easily align to accomplish both smart business and environmental goals:

THE LOCATION OF THE OFFICE

Having an office located within a high-density area makes a lot of business sense; it makes a company more accessible to a wider and deeper labor and customer pool, and associated car parking costs can be reduced by simply being connected to multiple mass transit options. The positive environmental impact of removing single-passenger cars from the road are many, and employees who bike or walk to the office are not only happier and healthier, but more productive while at work.

Giving preference to LEED Certified buildings is a great start to any office search, as the ownership has already taken the necessary steps to reduce energy, waste and water consumption, and improve indoor air quality.

THE OFFICE BUILD-OUT

By identifying an office that most closely matches the client’s desired configuration, a better rental rate can be negotiated since the landlord’s cost of construction will be lower. However, scaling back the scope of the tenant improvements also helps to reduce added pressure on new resources as well as minimizing construction waste that would have otherwise been sent to a landfill.

Boosting employee health and comfort also increases productivity, and one of the most effective ways to do that is to increase access to natural daylight. This is most easily accomplished in an open office plan along a window line, however if private offices are necessary, then utilizing glass will allow sunlight to permeate the office. If the tenant is located on the top floor of the building, skylights are often inexpensive and effective. Increasing the availability of natural sunlight simultaneously reduces the need for overhead lighting – and reducing energy consumption leads to cost savings.

FURNISHING THE OFFICE

With the sheer surplus of used and refurbished office furniture available today, purchasing new is most often a waste of money. The leasing broker has relationships with many furniture vendors who can provide an office tenant with quality used furniture, usually 30-50% below the cost of purchasing new. But in addition to saving the client money, the broker has again helped reduce pressure on raw materials and helped divert used furniture from a landfill. Additionally, new furniture can also be extremely toxic and can leach harmful VOC’s (volatile organic compounds), formaldehyde and other toxic chemicals into the air. Used office furniture will have already off-gassed these fumes and will therefore not negatively affect the indoor air quality of the office.

There are of course many, many opportunities to align sound commercial leasing strategies with sustainable business practices, especially when the real estate process begins with mindful focus and awareness. Identifying the intersection of these goals is not only SMART, but GREEN.