Annual State of the Market Update
ANNUAL STATE OF THE MARKET UPDATE
Speakers: Aida Barrigan, Heather Rosenberg, Hilary Firestone, Luke Patruno, Seth Strongin, Sharla Shimono, Will Lowery
Attendees: Bach Tsan, Carlo Gavina, Clayton Moses, Daniel Zepeda, Daniela Garcia, David Hodgins, David Nevarez, Deena Weiner, Drew Shula, Felicia Williams, Holly Hill, Jaime Villarino, Jeff Roi, Jose Jargas, Khalila Haynes, Lance Colling, Liam Dow, Peter Tray, Robert Willette, Simon Turner, William Lowery, Zach Khan
The U.S. Green Building Council’s Los Angeles chapter gave its annual State of the Market Update on December 10, 2015 to an audience of sustainability and existing building industry professionals. This presentation covered a variety of topics including updates on the industry as a whole, City of Los Angeles, resiliency, Energy Star, LEED Dynamic Plaque and the Green Janitor Program. This article summarizes the key highlights discussed during the USGBC-LA’s presentation on the state of the state of the market.
Rick Fedrizzi, President, CEO, and founding chair of the USGBC says that, “There are more than 120 million energy hogs out there that need to be retrofitted for high performance. It could save more than $160 billion in energy costs, and it could put our industry and a lot of other people back to work.”
In addition, President Obama stated, “Greater building efficiency can meet 85% of future U.S. demand for energy, and a national commitment to green building has the potential to generate 2.5 million American jobs.”
Beyond the high-level advantages of job creation, green buildings contribute to soft value creation factors such as: market differentiation, reputation, growing public awareness, tenant demand, reduced obsolescence, lower energy cost risk and increase in local and federal government regulations. With the potential for so many benefits, it is important for industry experts to understand the latest trends and the state of the green building market.
Furthermore, buildings in the U.S. use more energy than the total energy consumption of any other country in the world besides China and the U.S. as a whole (Figure 1). The need for green buildings is evident from this shocking fact.
Fortunately, green building strategies are becoming more prevalent in the existing building industry. Benchmarking and transparency policies are becoming increasingly more popular in the United States while building regulations are increasing globally with the government being the most important driver of regulations in many markets. In fact, all but one S&P 500 firm reported to either GRI (3,500 firms) or CDP (6,000 firms). Similarly, EPA Energy Star and LEED continue to grow and dominate the market for benchmarking and certification.
Market leaders in many industries are recognizing opportunities for competitive differentiation and risk management through Environmental Social Governance (ESG) Principles.
Environment: Reducing costs, impacts, and liabilities
Social: Improving engagement, increasing well-being and satisfaction, reducing social issues and risk
Governance: Ensuring high quality, informed, and accountable management
Bottom line: ESG considerations in the property industry reflect global trends
Companies are turning to PRI, CDP GRI, GreenRating, ULI Greenprint, breaeam, LEED and many more methods to report ESG information.
ESG and green building principles are driven by four major groups: regulators, investors, tenants/occupiers and Real Estate associations. Figure 2 denotes the different ways in which these groups influence the market.
In addition, tenants are demanding ESG performance and improved indoor environmental quality. Energy efficiency, sustainability and ESG initiatives have led to higher rental rates, lower vacancy levels, lower operating costs, higher capital values, increased asset liquidity, premiums in office rents, improved well-being for occupants, and regulator and climate risk mitigation.
On top of these benefits, 90% of studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies while 88% of the research shows that solid ESG practices result in better operational performance of firms. Moreover, 80% of studies show that stock price performance of companies is positively influenced by good sustainability practices.
As building managers, owners, architects, etc. begin to plan for sustainability and energy efficiency updates, they should keep in mind four major trends that are impacting the office market.
Non-Dedicated Office Space (sharing), along with more on-site amenities. Collaborative Work Spaces and functional project teams
Telework (Growing acceptance, even encouragement of telecommuting)Standardized
Work Spaces 250 sf/person in 2004 185 sf/person in 2014 Companies are beginning to downsize the amount of leased space that they need.
Instead, tenants are looking for flexible spaces that offer the ability to collaborate and share space. With the need for new space shrinking, retrofits of existing buildings will become more popular. According to Vince Adamus, Vice President, Real Estate and Business Development for the Greater Cleveland Partnership, “To be competitive in the future, office space needs to offer natural light, better temperature controls, better ventilation and options for more flexible reconfiguration”.
By 2016, Sustainable Accounting Standards Board (SASB) will have issued standards for about 80 industries in 10 sectors including:
SASB focuses on identifying industry-specific metrics that are comparable for investors. To do this, they use a research process that incorporates balanced stakeholder participation from corporate investors, analysts, and public bodies to identify those metrics that are most likely to be material for companies. These standards are designed to fit seamlessly within existing regulatory framework and aim to help companies identify and disclose decision-useful information in their 10-K filings. The Public Comment Period for these new standards ended on January 5, 2016.
City of Los Angeles Update
The City of Los Angeles plans to have 60 million square feet of energy efficient buildings by 2017 and a 30% reduction in energy use by 2035. To achieve these goals, city officials have identified the following 2017 near-term outcomes:
Create benchmarking policy to monitor and disclose energy building use Develop policy package (e.g., audits and retro-commissioning) to address energy consumption in the city’s largest buildings (public and private)
Expand LA Better Buildings Challenge (LABBC) to 60 million square feet12,500 homes retrofitted with residential PACE financing.
Avoid cumulative 1250 GWh of energy use between 2014 and 2017 due to efficiency programs
Resilience is the capacity to adapt and thrive in the face of stressors and shocks. It encompasses sustainability, business continuity, public health, social equity and cohesion and emergency preparedness. The USGBC-LA chapter created the Building Resilience-LA Coalition to address these issues and incorporate resilience into operations and maintenance over time. They are currently working with scope to implement integrated solutions ranging from on-site water reuse to design of an emergency cooling center. According to Building Resilience-LA, $1 in preparedness is worth at least $4 in recovery. Other benefits for a resiliency plan include: risk management, reduced insurance rates, brand recognition and PR, employee health and wellbeing, reduced utility bills and ability to capture opportunities as they arise.
ENERGY Star Update
Over 40% of the United States’ commercial building market is benchmarked on Energy Star Portfolio Manager. This equates to 400,000 buildings, 35 billion+ square feet and over 75,000 accounts. The Portfolio Manager program will have several big updates in 2016. The following enhancements have been made to the system:
Alerts – Red exclamation point (!) indicates problems with data. Links take users to the exact location of the problem to assess and make fixes.
Data Quality Checker – Additional checks added. Improved usability by allowing users to expand and contract visual display of alerts.
Reporting – Users can now include multiple time periods in a single report. This was our #1 requested enhancement from our users.
Meter Data – Can be downloaded in Green Button format. All meter data can be downloaded into Excel.Sharing/Transfers – Users can transfer “ownership” of properties in Portfolio Manager without EPA involvement. Bulk transfer of properties also available.
Future 2016 plans include:
Waste/Materials Management- Waste tracking will be made available through Portfolio Manager in Spring 2016. Users will be able to track by material (e.g. trash, paper, bottles, batteries, etc.) and management method (disposed, recycled, donated, or composted). Metrics will include total waste, total for each management method, and diversion rate Meters Tab-Separate tabs will be available for energy, water, and waste.
Water Tracking– In Fall 2016 there will be a possible 1-100 Water Score for multifamily properties (pending results of model testing) and new Statement of Water Performance to mirror Statement of Energy Performance
Training – Training offerings will include Bi-monthly training series with EPA’s WaterSense Program to educate users on techniques for improving water efficiency. In addition, 15-Minute Express Webinars will be offered to quickly train on a very specific topic.
Tenant Engagement and Tenant Star- New web pages specifically for tenants will launch in early 2016. These web pages will focus on tenant outreach and engagement with energy reduction case studies, examples of tenant/landlord collaboration and “Bring Your Green to Work” campaign materials.
In April 2016, Energy Star and the DOE will release a report on best practices in energy efficient design and construction of tenant spaces. In addition to this report, Energy Star is working on scoping out possible recognition for energy efficient tenant space design and construction. The “Tenant Star” program would be available late 2016 or early 2017. To develop this program, Energy Star is engaging with Energy Information Administration (EIA) to advise on data to be collected on tenant spaces and energy use as part of 2017 CBECS to facilitate additional tenant recognition based on actual energy performance. In addition to each of these updates, Energy Star plans to increase participation and engagement with several high-priority commercial building sectors including retail, warehouse and multifamily.
LEED Dynamic Plaque
The U.S. Green Building Council’s LEED® Dynamic Plaque™ is an innovative, global building performance monitoring and scoring tool used to assess a building’s performance in energy use, water consumption, waste, transportation and the overall human experience in a building. Based on these categories and the data input by the building manager, the plaque generates a current building performance score out of 100. This system is geared towards buildings that are already LEED certified and keeps a building’s LEED certification current annually with continuous tracking and monitoring.
There are two components to LEED Dynamic Plaque, the hardware and the software. The hardware publicly displays a building’s current performance in each of the five categories, providing occupants with the ability to stay informed and engaged in building-wide sustainability initiatives. The software view allows building owners and managers to dive further into each category and see the score in each category as well as the overall score in addition to the maximum achievable score in each category. Building managers can also utilize the software to compare against historic performance within one month and one year and compare local and global averages for building performance in the context of a larger community.
In 2015, the Verdani Team collaborated with the Transwestern team on pilot testing the LEED Dynamic Plaque with 10 Clarion Partners buildings. The test pilot proved to be very successful and answered several concerns that the Verdani team had with the tool. One of the concerns was how the buildings would score in comparison with their original certification ratings. We were also concerned about the Energy Scores. The results showed fairly comparable energy scores. Although some of the buildings dropped their LEED Ratings, most of the buildings achieved higher LEED ratings. Verdani is now recommending all clients to switch to the LEED Dynamic Plaque for ongoing recertifications. The data being tracked also aligns well with annual tracking and reporting efforts on a portfolio scale since energy, water, CO2 emissions and waste are key metrics reported on GRESB, GRI Reports, UNPRI and other corporate sustainability efforts.
While the LEED Dynamic Plaque is still very new to the market, Scot Horst, Chief Product Officer at the U.S. Green Building Council, says commercial real estate companies are showing strong interest in the plaque. This new tracking and scoring system will allow for global comparability amongst buildings and alleviate some of the recertification burdens of the LEED-EB method. One of the biggest pros to the LEED Dynamic Plaque is the potential to keep building managers and occupants engaged after the LEED certification process ends and to ensure they are committed to continuous improvement after earning the LEED plaque. The USGBC’s efforts to create the dynamic plaque is an attempt to simplify, gather real data and streamline the process at least from a recertification point. The dynamic plaque may also be used for buildings that want to benchmark and track ongoing improvements but that might never qualify for a LEED rating. It’s important to engage the low performers in continuous improvement programs so we can scale our efforts and transform the market at a bigger scale.
Green Janitors Program
In 2014, Building Skills Partnership (BSP), USGBC and BOMA-Greater Los Angeles and Service Employees International Union (SEIU)-United Service Workers West, formed a partnership to establish a Green Janitor Certification Program. This program provides janitors with a 30-hour training in environmental efficiency practices such as green cleaning, energy and water conservation, recycling and waste diversion, and health and safety. With this specialized training, janitors are now able to participate in the green management and operation of a building and help earn points toward LEED certification. In fact, a LEED credit was established for building service worker training. Eight LEED-certified buildings throughout Los Angeles participated in the pilot program, resulting in 126 janitors earning the Green Janitor Certification
About the USGBC-LA Existing Buildings Committee
This USGBC-LA subcommittee targets building owners and managers of high-rise commercial office buildings who are implementing green operations programs, and/or LEED for Existing Buildings (EB) certification. Our mission is to increase implementation of sustainable building operations by increasing awareness and providing resources to help the community understand the significant life-cycle cost benefits of green operational best practices and maintenance. Our vision is to transform the way buildings are operated in order to reduce their: energy and water consumption, waste generation, carbon footprint and operating expenses while also increasing the building’s value and creating healthier, more productive spaces for the building’s occupants.