Behind the Curtain: Increased Tenant Transparency

October 19, 2021 | By: Scott Baker

While energy performance has been the focus for most building owners, property managers, and building engineers for many years, there is now more of a push to see this reported. In recent years, Environmental, Social, and Governance (ESG) reporting has had a swift uptick. For commercial real estate, this means reporting on our energy, emissions, water, and waste data as well as certifications earned at our buildings. Most of the requests for this data appear to be driven by building owners for either ESG reporting or internal reporting, but we are also seeing more tenants are requesting this data.

These requests tend to be from tenants that are from national and international companies who are likely now reporting their ESG data. According to a November 2020 MarketWatch article, ESG investment “now represents 33% of the $51.4 trillion in total U.S. assets under professional management.” This has increased 42% from 2018.1

Creating the Benchmark

One of the most popular ESG reporting assessments, GRESB2, was launched in 2009 with a focus on the real estate sector. For the environmental portion of the assessment, the topics include energy, emissions, water, waste, and health/wellness. It covers performance using energy, water, and waste data while also tracking leading indicators that include audits and certifications for energy, water, waste, and health/wellness. While the commercial office sector is a little more streamlined for reporting this data, as main utility meters are typically invoiced to the building owner or property manager, industrial and retail buildings are more difficult to report. In many of these buildings, utilities may have triple-net leases which limit access to energy and water data for building owners. In these buildings, property teams typically ask the tenants for their energy and water data for reporting. Considering data confidentiality and availability at the local store/branch level as well as a lack of understanding as to why this is needed, this can be a difficult proposition. Given such, many property managers will pitch the data request directly to the tenant by encouraging a partnership to reduce both energy consumption and cost. They may also provide assistance in reviewing energy and water efficiency projects that can help the tenant’s bottom line while also improving the environmental performance for the building owner.

In most major cities in the United States, mandatory energy and emissions benchmarking programs have been introduced through local laws or ordinances. A map and list of these cities can be found through the Environmental Protection Agency’s website3. In addition, in June of this year, the House of Representatives passed legislation that would require public companies to disclose ESG metrics. If passed into law, this would require publicly traded companies to report on energy and emissions. All such laws and ordinances require more transparency around this environmental data, whether at the building or portfolio level. When it comes to public disclosure and reporting, the market and legislation are currently in sync. Most of the local laws and ordinances require use of the Environmental Protection Agency’s ENERGY STAR® Portfolio Manager4 – a free online tool – to benchmark and submit energy, water, and emissions data. This tool takes in inputs of energy data and building characteristics including building size, hours, and occupancy data and then for eligible property types will produce a 1-100 score. This score shows a comparison of the input property against the large data set of properties used to create the scoring calculation.

Tenant Disclosure

At the building level, environmental performance disclosure provides transparency for tenants to take operating expenses and building energy performance into consideration when choosing their new office location(s). For larger national or international companies, disclosure at the building level helps tenants to compare branches across their portfolio as well. In many of these markets, potential tenants need to seek out this information on their own or through their leasing agent or broker. Some cities are taking this disclosure a step further. For example, in 2018, New York City passed Local Law 335, which takes the required building emissions reporting and assigns a letter grade based on the ENERGY STAR® score mentioned above. Much like restaurant inspection scores are available to restaurant patrons, these scores are displayed at the building entrance to inform occupants of the energy performance of their building.

In a few local jurisdictions, energy and emissions benchmarking is also being used as a steppingstone towards emissions reductions. New York City, Boston, and Washington DC have implemented legislation aimed at reducing emissions. New York City has a goal to reduce emissions by 80% by the year 2050 and puts the responsibility at the building level to meet this requirement through Local Law 97. Washington DC plans to have a 100% renewable energy grid by 2032. Boston requires a 15% emissions reduction or an energy assessment can be performed to help guide buildings towards meeting future emissions reduction requirements. As these laws and ordinances build momentum, it will require landlords and tenants to work together to reduce energy consumption and emissions as building owners, property managers, and building engineers alone cannot achieve many of these metrics.

If climate change continues to be a focal point in the market, ESG reporting will included as a normal part of our job descriptions. The other major area of transparency right now is around health and wellness. As building occupants are returning to the office in larger numbers, many want to stay informed as to what the building owner and property management teams are doing at their buildings to ensure their health and safety. Many property managers are being proactive in their communication to tenants by discussing how they have changed operations at their buildings. Such changes might include running building systems early and late to flush them out, increasing ventilation rates to dilute air recirculated in buildings, increasing filtration MERV ratings in their systems to filter out more particulate matter, implementing new technologies targeting virus and/or bacteria in the airstream, elevator distancing, touchless features within the building, and many others. If your property has undertaken Fitwel building certification, the Fitwel Viral Response Module, WELL Health-Safety Rating, or other wellness certification, promote this and add labels. In some cities such as Washington DC, annual indoor air quality (IAQ) testing is a requirement. If your building has performed this testing or adapted technology to add IAQ sensors into your buildings, be ready to share the results. If the data or information to be shared does not positively reflect the building, be ready to provide context in the communication.

Preparing for New Territory

In addition to proactive communication, being ready to address tenant requests around wellness is a good idea. The vendors serving commercial real estate can be leaned on to help provide answers and strategies around some of the questions tenants might ask, such as “What is the air exchange rate in the building and how many CFM of outside air is my space getting?”. They may also ask about advanced filtration systems and sanitization systems; understanding some of those technologies can facilitate good discussions. Another common question is around cleaning protocols. Having information from your vendor showing how the building has addressed cleaning in tenant spaces as well as restrooms, common areas, cafes, etc. can help put tenants at ease as they are returning or planning a return to the office.

While interviewing several people within the commercial real estate industry for this article, the topic of returning to normal came up. Specifically, what are the expectations for the future related to wellness and what impact do those have on the office spaces of today? Though the coronavirus pandemic is slowing down in the United States, many businesses are already thinking ahead to the next pandemic and developing solutions to allow for business continuity. Many of the practices implemented within commercial real estate, such as hand sanitizing, tenant cleaning, and new tenant layouts with wider spacing and more flexible space options, are expected to remain in place for the foreseeable future.

As we move forward at our properties, being transparent and proactive while navigating a shifting landscape of environmental performance and health and wellness issues will be key to meeting the needs of our building owners, property managers, building engineers, tenants, and service vendors.

See the entire library of ENERGY STAR® videos and articles in our 2021 ENERGY STAR® Content Guide.


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