The economic case for retrofitting buildings
Feb. 27, 2017
Beyond social responsibility, more and more data are proving it makes economic sense for landlords to retrofit their buildings and make them sustainable and energy efficient.
Just as today’s consumers are willing to pay a little more for organic food, tenants will pay more and stay longer in green buildings.
A study of Bentall Kennedy’s North American real estate portfolio of more than 300 buildings found that environmentally friendly office properties net 3.7 per cent higher rents. In their Canadian holdings, occupancy rates in environmentally certified buildings were 18.7 per cent higher than non-certified.
The study, conducted by University of Guelph professor Avis Devine and co-author Nils Kok of Maastricht University in The Netherlands, calls tenants in green buildings “stickier” and “happier.” Tenants stay put in their space, she says, and reduce landlord leasing costs associated with turnover.
Plus, as governments move to increase the costs of carbon, which have now been benchmarked at $50 per tonne by 2022, there will be a strong incentive for building owners to reduce operational costs related to emissions and energy use.
BDC – the Business Development Bank of Canada, the crown agency that supports 42,000 small and mid-sized companies – says green retrofit “improvements usually pay for themselves within two to six years.” Deep retrofits will take longer to pay off, but they will pay off in the long term.
Couple these economic benefits with the U.N.’s Marrakech Climate Change Conference last November, and it’s clear the wheels are in motion to reduce emissions.
When it comes to the international climate change accord, our governments need to figure out how to move from words to actions to meet the 2030 net zero goal for homes and buildings. The longer landlords wait, the more punitive the price in both losing tenants and higher energy costs.
When we talk about climate change, it’s easy to point to obvious “sinners” – cars and smoke stacks. But commercial and residential buildings account for 17 per cent of the greenhouse gas emissions in Ontario.
We bought the buildings, but did it on the cheap, pushing back the real energy efficiency costs to someone else: our future selves. Now is the time to get serious: zero per cent of the cars on the road today will be on the road in 2050, but 70 per cent of today’s buildings will still be in use because we can’t rebuild cities overnight. We have to retrofit existing buildings.
Here’s the good news: in the building industry, unlike others, we have the know-how and technology to be a key player in meeting a steep challenge. Building efficiency isn’t just low hanging fruit, it’s the fruit that’s ripened and ready to fall into our lap.
Changing lightbulbs to LED and lowering the furnace a degree at night are important, but largely symbolic: renovation and retrofit are the real game-changers.
First and foremost, focus on insulation and draft sealing. Then consider high-efficiency HVAC equipment, rainwater management systems, improved window glazing, insulated piping and more efficient appliances to reduce demand for energy. Engineers and architects can help you find the greatest gains.
Talk is cheap. In March 2014, the governing council of the Ontario Association of Architects (OAA) approved the retrofit of our headquarters in Toronto, which was originally built in 1992. Our analysis shows that the additional costs of selecting a net zero retrofit is $1.8-million and will allow the building to become carbon neutral by 2018, 12 years before the 2030 deadline. We will reduce our energy use by 90 per cent and install solar panels to generate clean power on site, the combination of which will generate savings of more than $85,000 a year.
Before accounting for future carbon taxes, this renovation will pay for itself in about 20 years (and that number will drop as the cost of energy rises). The next generation of architects will be left with a building that has low operating costs, helping them in future financial planning.
To ensure retrofits deliver savings, building owners need: current baseline data on the energy and water use; recommendations for the proper equipment to reduce water and energy use; professional estimates of projected energy reductions and cost savings; and a monitoring program to collect data on the building’s energy and water use after the retrofit.
It’s also a good idea to research federal and provincial incentive programs, such as supporting loans for deep retrofits. Ontario’s green bank is a good example of how government can support the retrofitting of our building stock.
There is now compelling evidence that buildings with sustainable certification outperform similar non-green buildings in terms of rental rates, occupancy levels, tenant satisfaction scores, and the probability of lease renewals.
Retrofitting each building will have a positive effect on your tenants but also help to change the world.