Reining in operating costs has always been an important aspect of real estate, but a confluence of contemporary pressures is forcing property managers to sweat their assets more than they’re used to.
A rise in interest rates (and with them the cost of housing), global uncertainty due to the war in Ukraine, inflation, supply chain problems, and continued fallout from the pandemic are all impacting balance sheets. All of which underline the need for more effective cost reduction strategies.
Cutting energy consumption – used when heating, powering and lighting buildings – has become a key concern as commodity prices skyrocket.
Melanie Kendall-Reid, director of environmental consultancy Carbonxgen, says: “I've seen monthly energy bills for tenants in one large building go from around £140,000 to £1.2m, overnight. Those significant increases come against the backdrop of energy suppliers being unwilling to price new contracts, because the market is way too volatile, so companies end up on default rates.”
According to a report on cost trends published by CBRE in mid-2022, managing energy costs will be a “critical component” of facilities management in the next two years.
The study focused on the US and found that the cost of commercial natural gas had risen 42% between 2020 and 2022, “hurting the bottom line of many operators and facilities managers.”
The hike in the cost of commercial electricity was less dramatic, rising 15% over the period, but had “increased significantly in recent months”. Furthermore, the report noted a major 64% spike in prices for natural gas used in electricity production, indicating higher electric bills to come.
Running systems at lower intensity for fewer hours is an obvious route to conserving energy and cutting costs. Heating ventilation and cooling systems (HVAC) in commercial offices are intensive consumers of energy, so tweaking schedules to reduce consumption, whilst maintaining standards, could bring savings.
Reducing a building’s temperature levels by one or two degrees is another option, but it risks upsetting occupants if they aren’t all on board. “It depends on tenants and whether they are open to change,” says Kendall-Reid. “Turn the heat down without telling them and arguably, most people wouldn't notice. But tell them in advance and absolutely they will notice.” Coming to a collective agreement, through a building-wide Environmental, Social, and Governance (ESG) group, or a net zero working group can help ensure all stakeholders are engaged, she adds.
Devising appropriate operation and maintenance strategies means, in the first instance, getting a better handle on the most wasteful systems, equipment and spaces.
“You can't manage what you don't measure,” says Kendall-Reid. “People need an effective and targeted monitoring programme in place, using metering to measure what energy is being used, to demonstrate where savings can be made.”
Capturing data doesn’t have to mean major investment in new kit, like passive infrared (PIR) sensors, used to gauge occupancy levels, or Internet of Things (IoT) devices that collect and share data across a building.
“Focus on filling in the gaps,” says Shane Betts, head of corporate business at Integral, JLL’s building services and engineering firm. He says data available from alternative existing sources can sometimes suffice: “If you've got speed gates, for security access into a building, you will know how many people are in at any point in time, avoiding the immediate need for occupancy sensors.”
Energy performance analysts can help building managers drill down into data and test out different scenarios, such as the impact of reducing the temperatures or turning the heating on slightly later than normal.
Energy saving can be more of a challenge in large buildings with multiple tenants running their own separate building management systems and making their own decisions on heating and cooling, independent of the landlord. For example, shopping centres have historically been designed with large, centralised heating and cooling systems, but can run inefficiently because individual retailers have installed their own local heating and cooling on a distributed network.
Building managers and investors have a role to play in engaging with tenants to understand their specific energy needs and expectations, to share best practice and ensure that everyone is working towards the same energy reduction targets.
According to Betts, that could mean collectively agreeing to change the infrastructure of the building, so it operates more cohesively, or to alter lease arrangements to encourage energy reduction. “Lots of investors are looking at green leases, which ensure a common interest in reducing consumption to meet net zero carbon targets, and people do buy into that,” says Betts. Environmental and cost cutting targets often go hand in hand when it comes to improving energy efficiency.
One office building working harder than most to help its tenants understand the impacts of their energy use is 22 Bishopsgate in London.
The 62-storey skyscraper, developed by Lipton Rogers Developments for AXA IM - Real Assets, is SmartScore Platinum-rated and designed to cut energy use by up to 20% compared to the equivalent non-smart building, with further reductions anticipated once systems have bedded in.
The building runs on 100% natural renewable energy (no nuclear) and features 2,000 smart energy meters that produce around 60m readings per year. A triple glazed closed-cavity façade with automated blinds increases shading and limits the need for cooling in hot weather.
Through regular meetings with tenants, 22 Bishopsgate’s property managers reveal energy use trends on specific floors versus the average floor and in workshops explain how to take readings and maintain their building management systems (BMS).
According to Phillip Shalless MRICS, senior asset manager at AXA IM Alts, when one tenant chose to override the automated blind system and keep blinds up to maximise views, the team was able to demonstrate that this tripled the cooling energy required to stabilise temperatures.
“We demonstrated the associated cost and environmental impact, and I'm pleased to say they've now gone back and re-adopted the automatic blinds because of it,” says Shalless.
“Lots of investors are looking at green leases, which ensure a common interest in reducing energy consumption to meet net zero carbon targets” Shane Betts, Integral, part of JLL
The building-wide smart system is designed to automatically identify engineering faults, based on changes to energy efficiency. If readings on parts or equipment deviate from where they should be, the issue is investigated by engineers and appropriate maintenance or repairs carried out. The building has a virtual double in the form of a digital twin, diagnostics highlight the specific faulty parts in the model, including the model numbers, so engineers don’t have to waste time investigating the source of the problem on site.
The proactive stance improves energy efficiency, and according to Shalless, it avoids unnecessary costs associated with replacing parts based on a manufacturers’ schedule – rather than when they actually need replacing.
“It's cost savings, energy savings, landfill savings and environmental benefits – we're really working our building hard,” he adds.
Innovative strategies like this, alongside wider efforts to cut energy consumption and drive efficiency, aren’t just an economic imperative to help keep companies’ balance sheets in check. With the operation of buildings currently responsible for 30% of global energy consumption, they are a critical route to slashing emissions and preserving the planet for future generations.
“Cost savings, energy savings, landfill savings and environmental benefits – we're really working our building hard” Phillip Shalless MRICS, AXA IM Alts