In the spring of 2020, the COVID-19 pandemic disrupted every aspect of business and civic life in New York City, but it also offered a strange litmus test of building efficiency: what happens to energy use when offices are empty? The answer, sadly, is that its buildings are inefficient, with and without occupants. This is a huge problem for a city striving to meet ambitious climate goals, and for companies that need to strengthen their environmental credentials for investors and potential customers. To overcome these challenges, IMT partnered with leading New York organizations to dig deeper and find solutions.
The Decarbonizing New York City Offices project
Prior to the pandemic, building owners and operators were in the early stages of evaluating building performance requirements and reduction goals set by the Local Law 97 (LL97). This legislation requires building owners to work with tenants to integrate a more holistic energy efficiency strategy to comply with established carbon targets in 2024 and 2030. In response to this policy, The New York State Energy Research and Development Authority (NYSERDA) launched the Decarbonizing New York City Offices project in the fall of 2020. Lead by the Building Energy Exchange, The New York City Climate Action Alliance and the Institute for Market Transformation, this project seeks to develop solutions building owners, operator and tenants can adopt that are mutually beneficial and will result in sustained carbon reduction in leased spaces.
To kick off this new initiative, we conducted an industry survey to gather feedback from key stakeholders who have influence over landlord-tenant leasing processes. We collected responses from 270 building owners, building managers, tenants, brokers, attorneys, and consultants. These provided insight into current trends, operational changes as a result of COVID-19, as well as new energy intervention opportunities that will likely be adopted as standard practice.
What we learned from our survey
1. The pandemic has shifted how we think about offices
The most obvious shift is a huge increase in demand for improved indoor air quality and filtration. Without certainty around health and safety, few workers will want to go back to the office. Additionally, a year of working remotely has created a huge push for hybrid working models that may result in lower demand for office space—and a decidedly greater demand for flexibility. Uncertainty is driving tenants to postpone lease signings or renewals, and to seek terms that make termination easier
2. Business as usual is inefficient, but it doesn’t have to be
Sample tenant energy data from select New York City office buildings showed only 5% of buildings experienced whole-building energy reductions above 30% even though occupancy dropped by as much as 95% at the height of the pandemic; similarly, more than 40% of buildings only experienced whole-building energy reductions between 10%-30% despite similar occupancy decreases. Addressing this, approximately 60% of building owners reported changing their energy efficiency strategies to better control energy consumption. Spurred by LL97, nearly two-thirds of owners are now engaging with tenants on energy usage, and nearly 75% are making data accessible to tenants at least monthly. Many owners are beginning to require submetering as well. In general, building managers indicated that educating tenants on the financial impacts of energy use, and on opportunities for energy reduction, is the most effective way to promote decarbonization.
3. Intervention opportunities
Cost remains the primary driver for efficiency action. Approximately 60% of respondents indicated they had participated in NYSERDA offerings, such as the Flexible Technical Assistance Program, the Commercial Tenant Program, and the Real Time Energy Management Program. To further spur efficiency, it is critical to target businesses that have not yet participated in these programs, and to offer ample support for low- and no-cost solutions.
Leases also offer a key intervention point, which is why IMT continues to promote green and high-performing leases over traditional ones. Much of the wasted energy consumption over the past year has been related to lease clauses that require building heating and cooling, even when space is unoccupied, and also because traditional leases contribute to misalignment between who bears the costs and benefits of energy improvements. In the survey responses, nearly 70% of building owners indicated that they either include or plan to include energy efficiency requirements in their leases.
It’s important to note that 90% of tenants responded that building-level sustainability programs are essential or very important. This is part of a global trend toward tenants, especially larger companies, seeing real estate as a key component of reaching their overall sustainability goals. A recently released JLL survey of corporate executives indicated that the demand for greener spaces is in danger of outstripping supply.
New York City has long been at the cutting edge of change, and the world will be watching as the commercial real estate industry tackles not only energy efficiency, but the broader role that buildings and real estate play in helping or hindering climate progress. These survey results are fundamentally optimistic and they show that the city is at a potential inflection point toward widespread change. The approaches that are successful here may well be replicated across cities and towns around the world, and those that are not will become cautionary tales. This makes it critical for New York to get it right.