Over the past few years, we’ve seen a shift in the corporate world towards sustainable practices. Large corporations and small businesses alike are re-evaluating every aspect of their business to operate in a way that is more environmentally friendly and socially responsible. One excellent example of this is green leasing.
Green leasing practices reconcile the financial incentives of both the landlord and tenant with the need for environmental sustainability. This is particularly important for C-level property managers, who are typically dealing with older buildings that aren’t equipped with modern technology. In this post, we’ll define green leasing, take a look at some examples of green leasing in use today, and show you how it relates to ESG reporting.
What is Green Leasing?
Green leasing, also known as energy-aligned, energy-efficient, or high-performance leasing, is the practice of realigning the financial incentives of sustainability or energy measures in lease documents.
In a green lease document, building owners and tenants agree to implement specific sustainability measures or meet certain goals. Green leases also encourage financial efficiency by conserving resources. Many companies these days will purposely seek out green leases in order to meet the requirements for sustainability certifications, most notably a LEED certification. Green leases are also an important part of meeting environmental, social, and governance (ESG) standards.
Why is Green Leasing Important?
Offering green leases for your corporate tenants has become particularly important in recent years. Climate change has become a very pressing concern on a global scale, forcing us to re-evaluate both personal and professional practices.
Many of the world’s top companies are now prioritizing energy efficiency and other sustainable practices when selecting their office spaces. As a property manager, you want to attract high-value businesses to your spaces. Investing in green leasing practices is an excellent way to do this.
There are many reasons why companies are focusing on sustainability these days. Not only are these practices ethical, but they can also attract customers, investors, and talented employees. Many consumers these days will consider a company’s impact on the environment before making a purchase or investment. It’s also become very common for employees to seek out companies that align with their values.
Millennials and Gen Z are particularly concerned about the environment, and they’re making up more of the workforce than ever. “A Morgan Stanley study found that millennials are twice as likely as the general population to invest in companies with social or environmental goals,” says investment firm Janus Henderson. “In North America alone this generation, alongside Generation X, is set to share a wealth transfer in the region of $30 trillion from their baby boomer predecessors in coming years. The pressure from asset owners to invest responsibly and have a more sustainable mindset is therefore expected to grow significantly.”
Early research indicates that green leases are already starting to shift the real estate market. “Research has shown that commercial real estate businesses can drive more revenue from buildings with energy efficiency certification. One-third of respondents to a McGraw-Hill Construction survey said they were willing to pay a premium for green retrofitted space, while a separate CoStar study of the Los Angeles CRE market found that buildings with LEED and ENERGY STAR certifications drew higher lease rates and sold at higher rates than asking price than average rates for the region,” says Audrey Choi, Chief Marketing Office at Morgan Stanley.
Real Examples of Green Leasing in Action
There are plenty of excellent examples of green leasing that have popped up over the past several years. One of these is Physicians Realty Trust, which has a portfolio of healthcare properties.
This company has already implemented green concepts into all of their leasing documents, but they are also planning on expanding their green leasing strategy long-term. They have already set three-year goals to cut back on energy and water usage, minimize waste, and lower emissions. They are also considering implementing Energy Star appliances and other sustainable technology in their buildings.
Another great example of green leasing strategies is JBG Smith Properties. This regional developer is based in Chevy Chase, Maryland and focuses on the Washington, D.C. metro area. One of JBG Smith’s biggest focuses is the “split incentive”, which is when the landlord covers the cost of energy-efficient upgrades. This reduces ongoing energy costs for the tenant, making the properties incredibly attractive. They have also implemented a green leasing task force to expand their green leasing strategy.
Green Leasing and ESG
Many companies are currently working to hit ESG standards, and using a green lease is one way they can do that. Both institutional and retail investors use these criteria to evaluate the companies they want to invest in.
A credit ratings agency called DBRS Morningstar has conducted studies indicating that ESG standards are some of the most important criteria for any company to meet right now. Climate change has resulted in increased heating and cooling costs, and natural disasters can result in severe property damage, all of which can take a toll on any company financially. Meeting ESG standards through green leasing and other practices can help to keep these costs in check.
Energy efficiency and water conservation are just the beginning – in the future, vertical farming could be a part of some of the world’s largest office spaces. Copiana is leading the trend by building aeroponic tower farms in commercial spaces.
The Copiana team maintains each farm and hosts monthly harvests that create a sense of community for their tenants. These farms can be grown indoors or outdoors in any climate, allowing us to bypass some of the challenges that come with traditional farming. Interested in bringing our farms to your property? Contact us today to learn more.