10 reasons green leases create value for tenants and landlords

Many corporate tenants have heard about green leases, and almost as many might wonder whether they should consider one. The answer, for a variety of reasons, is an overwhelming “Yes!” It is a real-estate opportunity that truly benefits everyone: tenants, landlords and not least, the environment.

Quite simply, a green lease is an arrangement that offers substantial benefits — both quantitative and qualitative — to both tenants and building owners/landlords by:

• improving environmental performance of the leased space by securing a few critical commitments on the part of both the landlord and the tenant;
• aligning financial incentives so that both parties benefit from adopting green measures; and
• improving environmental data reporting transparency to enable tenants and landlords to measure success against agreed-upon goals.

A green lease need not be complicated. Often, it merely requires structuring terms and agreements already in place, such as temperature settings and building operating hours, in a fashion that provides sustainable cost savings without negatively impacting building performance and occupant comfort.

Implementing a green-lease strategy is not overwhelming, but it must be undertaken through a careful process to assure maximum effectiveness, sustainable success and savings.   

Here are 10 good reasons to pursue a green lease:

1. Reduce utility consumption and save money. A sound sustainability strategy almost always will reduce your requirements — and therefore, costs — for electricity, HVAC and water. Some green measures generate immediate savings, but most should more than recoup their investment over time. Jones Lang LaSalle’s clients have experienced short-term utility spend savings of 3 percent to 13 percent from easy-to-implement sustainable measures built into their leases. To translate that into dollars, let’s use a theoretical example of a 1 million-square-foot leased portfolio with average energy cost of $3 per square foot — a $3 million annual energy spend. The portfolio would reduce its energy costs by between $90,000 and $390,000 a year.

Run the same calculations on your property portfolio, and the reduction in utility costs alone is probably enough to justify a green lease. One of our clients adopted measures that identified a reduction in energy spend across about 50 global sites by approximately $3 million annually.

2. Improve the working relationship with your landlord. Frequently, lease negotiations are marked by a flood of tenant “asks” that put landlords on the defensive and can escalate to a contentious tug of war. Successful green leases are designed to financially benefit tenant and landlord so that both parties have an incentive to enter into sustainable agreements. Such dialogues about mutually beneficial green-lease provisions can strengthen your overall relationship with your landlord, and increase your desirability to building ownership as a preferred tenant.

3. Support corporate sustainability objectives. Many companies have set cumulative or percentage goals for carbon footprint reduction or other environmental gains across the entire organization. Successful green leases greatly assist such objectives because they not only generate, but enable, tenants to measure and report quantitative sustainability improvements. They contribute hard metrics that can be maximized in calculations of a corporation’s overall environmental gains.

 Taking the first steps

4. Enhance your corporate/brand image. To realize how important it is to be perceived as an environmental leader in today’s marketplace, look at large companies’ websites or product packaging. Increasingly, a wide range of stakeholders, including customers, investors, employees, media and governmental officials, care what a company is doing for — or to — the environment. A green lease is a creative way to differentiate your organization as having made a positive commitment not only to the environment, but to the viability of your company. It also yields quantifiable sustainability gains that can be featured in Carbon Disclosure Project responses, sustainability reports and other disclosure mechanisms.

5. Demonstrate vision and leadership within your industry. Green leasing can help distinguish an organization as an industry thought leader that reaches above and beyond the pack. It can also increase your influence as a stakeholder in potential government regulations affecting your business. Public-sector officials often confer with those whom they deem to be industry leaders before enacting new rules. Being regarded as an industry visionary increases your chance of gaining a seat at the decision-making table.

6. Improve civic relations where you lease. Many large cities already are strong advocates of green leasing. New York Mayor Michael Bloomberg has assembled a Green Lease Task Force, and San Francisco’s Business Council on Climate Change has developed a Green Tenant Toolkit for local occupiers and landlords. Adopting your own green leases demonstrates your commitment to a sustainable practice many urban administrations either actively support already, or soon will as they begin to understand the benefits to their community’s environment. Green leasing creates opportunities to strengthen relationships with local lawmakers by providing an example they can use to promote the strategy to other local business tenants and their landlords.

7. Help LEED and other certification efforts. Having a green lease can help a property instill and encourage sustainable conditions and practices that can earn valuable credits toward LEED for Commercial Interiors (LEED-CI) certification. It also can help facilitate the path toward obtaining Green Globes and other formal measurement recognitions for sustainability.

8. Improve employee productivity, recruitment and retention. Employee gains from green leases are sometimes considered a “soft” benefit, but they can translate to hard dollar savings and cost avoidance for an organization. According to a CoStar study, workers were almost 5 percent more productive, with almost 3 percent fewer sick days, in environmentally friendly buildings. Using another hypothetical example, if your company has 10,000 employees with an average $50,000 annual salary, the reduced time off the job could be worth $39 million in work annually.

A sustainable work environment fostered by a green lease also helps companies attract and retain valuable employees. Studies show that most young professionals — a key to the growth and ongoing success of most companies — care about the environment, practice at least some green behavior at home and want to see it practiced by their employer. If all other employment factors such as responsibilities, salary and benefits are roughly equal, the corporate sustainability commitment demonstrated by a green lease could put you a step ahead of competitors for attracting the best and brightest employees.

9. Waste-stream diversions might generate additional savings. Tenants can potentially reduce waste going to landfill — along with waste-handling costs — through measures facilitated by green lease provisions that encourage reducing consumption, recycling and even composting. Collecting data on waste also can improve reporting practices and results. Best practices are to achieve waste diversion rates of up to 80 percent or more. In some cases, recycled materials can be sold for additional reductions to occupancy costs.

10. A green lease is good for the environment and everyone in it. A green lease is not just the smart thing to do, it is the right thing. Scientists overwhelmingly call for efforts to reverse human contributors to global warming, and according to the Environmental Protection Association, buildings account for 30 percent of all greenhouse gas emissions in the United States. Increasing workplace sustainability is an opportunity to do something good for both business and society.

Taking the first steps
Implementing a green lease strategy is not overwhelming, but it must be undertaken through a careful process to assure maximum effectiveness, sustainable success and savings. Three important initial steps are:

• completing an in-depth green lease site assessment on a representative sampling of sites;
• developing benchmarked green site selection criteria and RFP language to be used consistently in acquiring new leaseholds, and renewing/renegotiating existing ones; and
• training your staff to understand and use best-in-class green leasing tools.

To maximize your results, consider engaging a trusted independent advisor with expertise in both leased commercial real estate and implementing cost-saving sustainability across a large organization. Not only will their expertise increase your green leasing success, but also your organization will be freer to focus on its core strengths and business goals.