Werner

Most people in our industry realize we have entered a renter’s market for office and retail space. This is because many businesses have been downsizing or closing shop altogether, and supply is once again exceeding demand as a wave of new commercial space has come to market over the past few years. So, for the first time in many years, tenants have the advantage in picking which property they want to lease for their business.

Historically, when supply far exceeds demand, tenants gravitate to properties where rental rates are low, operating expense reimbursements are minimized, tenant improvement dollars are maximized and other tenant benefits—such as multiple options on renewal periods—are offered to them when deals are struck.

However, a new category of tenant benefits has arisen. Call it the ‘greening’ of the commercial real estate industry, where sustainable environments are increasingly important within the workplace.

There are several reasons why sustainability has become a near necessity in adding value to commercial space as a way of staying competitive. First, businesses are more aware of the economic benefits—such as saving money on energy costs—that come with maintaining environmentally friendly green workspaces. Second, many employees are demanding that their employers provide green working environments. They want to feel they are contributing to a good cause and decreasing their carbon footprints. Third, green offices and retail shops are generally more aesthetically pleasing and help boost employee and customer retention.

There are also several ways to ‘green’ existing commercial buildings to make them more competitive with newly constructed buildings that are built to be green from the start. Greener buildings can be achieved by installing roof coatings, Energy Star HVAC units and water recapturing systems. Xeriscaping with native vegetation is a landscaping option to ‘green’ a building. And implementing recycling programs of all kinds can also help make a more sustainable environment.

On the other side of the equation, many real estate investment and management firms are demanding that their investments go into sustainable real estate. This is especially true for European investors, who have been working with sustainability codes for years.

This trend is beginning to make its way to our shores, as governments here in the United States are starting to force the issue by requiring both new and existing properties to meet green building standards. In fact, in August, San Francisco authorized a green building ordinance that imposes strict requirements on newly constructed residential and commercial buildings, and renovations to existing buildings. The ordinance requires newly constructed commercial buildings larger than 5,000 sf, residential buildings taller than 75 ft, and renovations on buildings larger than 25,000 sf to meet green building certification program requirements. New commercial buildings must be certified LEED (Leadership in Energy and Environmental Design) Silver in 2009 and Gold in 2012. This is just the beginning. Before too long, every municipality in the country will likely be following San Francisco’s lead in imposing green requirements for commercial space.

What ‘greening’ can a tenant hope to obtain from a landlord? A tenant may ask that the following be provided in its commercial space: indoor air quality via air conditioning controls; exterior lighting and exterior views that reduce the need for much indoor lighting; recycling stations; ergonomic work stations; water-conserving restroom facilities; Energy Star appliances; environmentally friendly cleaning products; occupancy sensors and fluorescent, rather than incandescent, lighting; opportunity to use mass transit or car pool to save gas; or bicycle racks.

A good landlord-tenant relationship benefits both parties. In the best situation, property owners and tenants work hand-in-hand to create a green, sustainable environment for their buildings—both inside and out. While tenants will appreciate being a part of the positive change, property managers and investors will see gains in both the property’s value and in their tenants’ satisfaction.

The views expressed here are those of the author and not of Real Estate Media or its publications.

Seth Werner is chairman and CEO of Cypress Creek Capital Inc. in Fort Lauderdale, FL. He can be reached at swerner@cypresscreekcapital.com.