Picture the modern office building: what do you see? Probably tall, with a flashy lobby, maybe a corporate logo on top. Made of all glass, right?Now picture the modern office lease: not as transparent as those views from the 8th floor.
In the age of social media, constant connectivity, and widely accessible data, even commercial leases are modernizing. Building owners and managers are looking to quantify their operating costs in better detail — and shift these costs to tenants.
The split incentive issue in existing leases makes that process slow and difficult to coordinate. Opaque energy billing limits decision making. So we built an easy-to-install sensor solution to enable greater energy intelligence. Our lightweight and low cost package makes data easily accessible to everyone in the value chain.
As a tenant in a commercial office building, what does that data mean for you? Here are four reasons you should demand better energy data in your building.
1) Fair Billing
Most commercial real estate leases are called “triple net” — meaning they include not just the rent, but also key additional charges, including real estate taxes and an allowance for building maintenance. These charges are passed through to the tenants as part of the overall budget for space. Another of these charges commonly passed through to tenants are the building utilities; electricity, gas for heating, trash, water and sewer.
But unlike your home or apartment complex, these utilities are billed to the building in bulk, rather than directly to each tenant. They’re often divided up evenly based on square footage. That means the accountants and advertising agencies who turn off their lights and go home at 5pm pay just as much as the tech company running their data center 24/7.
Since the landlord passes through all of these charges, he may not care much. And the CEO of the tech company loves her subsidized electricity bill. But what about everyone else?
Tenant submetering allows each tenant to receive a bill just for what they use. What could be fairer than that?
2) More Transparency
By submetering tenant floors, property managers can bring transparency to the energy charges each tenant receives. One of our customers called it “like being in the dark, and being brought into the light.” Tenants are accountable for their energy profile, and can now understand their overall impact on the building, including peak demand.
Better transparency into energy use helps on many fronts. Space planning and asset management can be improved. Employees can be engaged in sustainability practices. By adding a public dashboard, even customers can participate in your ever-improving sustainability story.
Adding advanced analytics to the package unlocks even more value on both sides. Beyond knowing what you consumed, you can know where you consumed it, and when. Is that vending machine you installed wasting energy? Did Kathy leave her computer on last night? (Total Kathy move…) Maybe the cleaning staff is watching The Late Show in your conference room. Now you will know.
3) Aligned Incentives
The biggest problem we see in driving consensus for energy efficiency projects is the split incentive problem. There’s an economic theory known as “the tragedy of the commons.” It says that people only do what’s best for them, even though doing something else would be better for everyone. A common example is catching as many fish as you can, until all the fish are gone.
What it means for you as a tenant is that you’re unlikely to support a major overhaul of the building chiller system. Even if it saves a ton of energy, it means a known cost but an unknown benefit to you. Deep energy intelligence solves this problem. Landlords can quantify the costs better, and tenants can understand the benefits. Energy transparency makes it easier to qualify for utility rebates and incentives.
Think about the tech company CEO above. Data centers need a lot of cold air to keep those servers spinning. If she were paying twice as much for electricity, don’t you think she’d be much more willing to support that chiller improvement? And that cheaper cooling is better for you too.
4) Fewer Complaints
Maybe the best reason to install submeters for tenant space is the ability to reduce complaints on both sides. Huge, unexpected energy bills will no longer be a surprise. Bill-backs will be easily defensible. With a better understanding of how you use energy, budgeting will be simpler and more accurate.
Over time, tenants and landlords can filter for a better fit. Tenants can find a building that cares about sustainability as much as they do. By the way, those buildings have lower operating costs. Landlords can find tenants who are focused on managing their energy footprint — and probably also on keeping the building clean.
If you’d like to learn more, read our other articles, about the asset value of sustainability or how to make portfolio management easier.
Or just reach out to see how Verdigris can help you achieve tenant zen in your commercial office.
