How Government Green Building Rules Are Changing Commercial Property

Commercial property owners have something to deal with that they likely never would have had to years ago – government mandated green building regulations. Where once energy efficiency certifications became an optional exercise in public relations that companies would pay a fee for, buildings today must now complete requirements with deadlines and penalties (and in some cases, actual fees) to comply. Although it didn’t happen overnight, when it happened, it hit hard and it hit fast.

The reality is that most building owners should have seen the writing on the wall with this one. The government all but made it clear through climate targets that they intended to hold property owners accountable. But knowing that compliance regulations exist and having them implemented within given timelines are two totally different things. Add in surprise costs, miscommunications about what’s included, and immediate deadlines, and things get complicated.

What Started the Change and Why It’s Relevant

In many cases, government agencies internationally have lofty carbon reduction efforts, and in many studies, buildings are responsible for consuming tons of energy and contributing to excess emissions. Thus, if efforts are serious about climate efficiency, internal operations must be fixed in established buildings in order to bring them up to code.

At first, the regulations were relatively mild: some new construction standards for energy efficiency here or there, reporting requirements there, incentives for compliance. But as national deadlines for climate performance loomed so did the regulations that included certification requirements and existing performance energy disclosures (and in some situations strict expectations that existing buildings must meet requirements by a certain time).

It’s no longer a requirement for new construction only; it’s now retroactive to aged buildings as well – those no one expected to be sustainable and effective – and that’s where expenses add up quickly.

Certification Requirements

Green building certification was once a preferred quality; it charged a few extra dollars in rents per foot, attracted higher-profile tenants, led to good press and was considered beneficial. Thus, while the costs of implementing such strategies outweighed the initial investment unless the building’s owner was truly passionate about being sustainable (and financially able), many people didn’t bother in the past.

But now either it’s not required for a certain level of size or it’s tied to tax breaks or grants that make numbers add up better for sustainability. In addition, tenants – especially large corporations with their own sustainability initiatives – won’t even look at uncertified space.

The certification process is not an easy one. It requires an energy audit, documenting the building’s systems in use, researching how much water is used and proving whether or not a building meets requirements. What property managers typically know how to do is assess leases and maintained timelines, not necessarily conducting a symposium on meeting benchmarks per typical building systems. Therefore, more and more people are relying on experts who know their way around bca green mark Singapore or similar certifications and third-party reviews have become standard practice.

There’s just one caveat – certification is not a one-and-done effort. Most programs require recertification at least every few years – which means ongoing monitoring and improvements. Typically, buildings get certified and let it go without systems in place to track energy movement, waste management and documentation.

How Property Owners Have Responded

Those who recognized long before these rules were in place took action – they upgraded mechanical systems (HVAC), added insulation from within and outside and added smart building technology. These buildings are fine now as they got ahead of the required efforts.

However, plenty waited either hoping that it wouldn’t be so bad, not having the cash on hand to implement changes or just neglecting the need. Those are the buildings struggling now.

The requirements are all encompassing – from energy consumption to water usage to improved indoor quality of air conditions to waste management. When factoring in significant capital expenditures, this makes meeting effective complexities realistic. For existing buildings, retrofitting HVAC systems or putting an outside covering back on a building isn’t cheap, nor are there any guarantees along the way depending on how old or worn those systems have been since being installed in the first place.

The Costs Don’t Always Add Up

The thing is that multiple reports say green renovations will pay for themselves with reduced energy expenditures down the line. In many cases, this is true. Best insulation through windows requires less heating; efficient mechanical systems reduce operating budgets.

But at what costs? If a building owner is looking at five or seven years to return on investment from upgrades that seem reasonable, that’s palatable. But when they extend to fifteen years down the road with costs into the millions – it’s a tougher sell.

In some stronger markets there exists appropriate demand from certification green space that owners can charge enough rent to make it worth their while when recouping costs that way. In softer markets, or existing buildings in less appropriate locations, no premium exists. The building still must meet standards but gets none of the financial upside.

Government incentives help – grants reduce soft costs if applicable or cover a percentage of equipment installations; tax breaks take away certain responsibilities. But ultimately property owners are left with checks that must be paid up front regardless of what possible help exists down the road.

Compliance Dates Hold Strong

In many cases there are hard compliance dates in place by which buildings must perform during specific years – 2030, 2035 or whatever the national benchmark states. Failure to comply means penalties – and in some situations it’s leasing a space that cannot be sold or leased if it doesn’t meet expectations.

This means a log jam occurs as regulations approach; hopefully certified buildings will be few and far between as more meet expectations on time. However as both tenant interest and transactional movement increase overall efforts get backed up beyond intended means – which include longer wait times for audits as more contractors are requested at once.

Logic states to begin now so that buildings can phase in efforts, expanding projects out over years with minimal costs. Those who wait until tomorrow will be in trouble come tomorrow.

What Tenants Expect Moving Forward

Tenant perception has shifted as well. Large corporations needed their own internal sustainability efforts met when it came to constructing their own spaces so where they placed their headquarters mattered too – but more so they’re learning to ask questions about energy performance and if a tenant space qualifies as a regulatory liability when it becomes time to negotiate lease renewals down the road.

Smaller tenants are starting to care as well – energy efficiency means lower operating costs on a macro scale which means expectations into low rent or minimized pass-through expensing percentages.

Buildings without substantial information will find themselves ignored on the marketplace; industries are already shifting perception – and older ownership with properties considered doted upon ten years ago find themselves outdated – or worse – risk liabilities.

The Bigger Picture

Government green building rules aren’t going away any time soon. If anything they’re only going to get stricter over time as climate efforts change and new technology becomes available for better performance standards.

For those who own commercial property, its time to realize that the property sector is fundamentally shifting what’s viable – and what’s acceptable now won’t necessarily be acceptable five years from now should standards arise that require major investments simultaneously.

Yet property owners have options; they just need to make them happen. Neglecting tenants feels good until expenses arise but waiting until effort becomes a reality only makes everything more expensive at onset.

The buildings that will prosper moving forward will be those savvy enough with limitations to justify forced decisions/efforts right out of the gate.

 

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