Tenant wants more transparency on rising energy costs
Most building owners and asset managers have been focusing on energy performance for many years, but now adequate reporting on it is becoming painfully important. The sharp rise in energy prices has everything to do with that.
On top of that, competition in the office market is increasing: Experts such as Herman van den Berg recently predicted in Het Financieele Dagblad that the home/office split will remain around 60/40.
Higher energy prices mean that inflation has risen to 10% and this translates directly into hefty cost increases for office tenants. First, energy costs rise and the tenant is more expensive. If the energy costs are part of the service costs, a 5% administration fee on the energy is added. Secondly, the energy costs are part of the CPI index, and since the rent is usually linked to the CPI index, they rise accordingly. In short, the tenant pays double the energy increase and the landlord keeps quiet. Isn't it the landlord's job to use the extra rental income to make properties more sustainable at an accelerated pace?
The accusation that owners are profiting from the energy crisis then quickly lurks. Being transparent to tenants about what you are doing to improve the energy performance of your building and communicating about it constantly is then even more important.
Besides health and well-being, energy performance is an additional argument for constantly communicating with your tenants. They will increasingly ask for this kind of data, where Environmental, Social Governance reporting was previously mainly focused on internal reporting, due diligence or benchmarking within a peer group.
Certainly larger tenants additionally have a policy to report how they deal with ESG, including with regard to their building. And their employees find sustainability, health and well-being more important than ever before.
It is therefore important what you compare yourself to as a building owner, for instance with an international standard like BREEAM or a benchmark like GRESB. For example, GRESB wants to know the performance of energy, water and waste data, while also tracking leading indicators, including audits and certifications for energy, water, waste and health/wellbeing. Those who can do that at the object and even unit level will get more and more points.
Behind the tenant's door
While the office sector is slightly more streamlined for reporting this data, as the main utility meters are usually billed to the building owner or asset manager, residential complexes, for example, are more difficult to report at a detailed level. You will have to get behind the tenant's door. Hence, you see a growing role of the property manager in ESG projects. These can make a data request directly to the tenant by encouraging a partnership to reduce both energy consumption and costs. They can also help assess energy and water efficiency projects that can help tenant outcomes while improving environmental performance for the building owner.
At the building level, disclosure of environmental performance provides transparency for tenants to consider the operating costs and energy performance of the building when choosing their new office location(s). For larger national or international companies, building-level disclosure also helps tenants compare locations in their portfolio. And that goes beyond comparing the energy labels of those buildings - the actual performance, that's what matters.
The other key area of transparency right now concerns health and well-being. When employees return to the office, many want to be informed about what the building owner and property management are doing in their buildings to ensure their health and safety. More and more building owners are being proactive in their communication to tenants by discussing how they have changed the activities in their buildings. Such changes include running the systems in the building early and late to flush them out, increasing the ventilation rate to dilute the air recirculated in the buildings, increasing the filter values in their systems to filter out more particles. You can also think about applying new technologies that target viruses and/or bacteria in the airflow, touch-free facilities in the building, and many others. If your building has a certification, such as the WELL Health-Safety Rating or has another wellness certification, promote it and add labels.
The organisation and communication of information flows on ESG are taking off, and owners who are at the forefront of this are winners when it comes to impact and the value of their portfolio. The energy crisis is making this change even faster.