Investors in commercial real estate (CRE) have a singular goal: increase the value of their assets. Returns on real estate investments are dependent on the proportion of net operating income relative to current market value, so significantly decreasing operating expenses can help increase rental rates and drive increases to net operating income and capitalization rates. CRE today is being redefined by new technology and changing tenant and investor expectations.

What Challenges is Commercial Real Estate Facing Today?

The three biggest challenges facing CRE today is 1) lack of visibility into resource and building data across a portfolio; 2) lack of expertise to pinpoint opportunities to reduce expenses portfolio-wide; and 3) the ability to execute projects at speed and scale to realize savings quickly.

Although CREs are aware that operational efficiencies and cost savings can be achieved through a sustainable operations plan, many of them lack specific knowledge required to develop an impactful sustainability strategy that can be deployed across their portfolio. Management of a broad portfolio of properties with legacy systems, differing billing practices across utility geographies, and inconsistent resource and building data creates immense challenges when aiming to glean insights to drive operational enhancements. Without the appropriate analytics tools and dedicated in-house expertise, CREs can be challenged to glean actionable insights from their available bill and facility data, leaving them challenged to develop well-informed strategic plans, monitor performance of initiatives, and communicate impact to investors. And while there is growing investor, real estate owner, and tenant expectations for CREs to meet sustainability goals and drive down operational costs, there exists a disconnect between tenants and CRE companies on their commitment to sustainability goals.

What Commercial Real Estate Trends Support the Sustainability Transformation?

• Technological Enhancements. Advancements in building technology and analytics and IoT-connected devices increase opportunities for improved asset management and maintenance, reduced energy costs, extended asset lifetime, and increased tenant comfort. For example, property managers can leverage sub-meter and interval meter data, along with real-time water and waste data collected by sensors, to pivot quickly when excessive resource use is detected or pinpoint locations for priority efficiency projects.
  
• Investor and Stakeholder Expectations. ESG objectives (Environmental, Social, and Corporate Governance) have grown to be a critical factor of responsible investment practices. There is growing evidence that performance on ESG objectives is closely aligned to financial return, given the gains that can be driven in reduced operating costs, increased asset valuation and reduced risk. According to ENERGY STAR, the average ENERGY STAR certified building uses 35 percent less energy and cost 50 cents less per square foot to operate. Therefore, it is more likely that the higher net operating income from energy cost savings will be recognized through higher building valuation.
• Increased Transparency. The digital revolution is driving an increasing demand for transparency into costs and fees by commercial tenants.

What Should Commercial Real Estate Companies be Thinking About?

Some of the following actions can help commercial real estate companies address current trends and external pressures while maximizing savings and resource and energy efficiency.

• Have a sound foundation of data. Investigate tools that enable you to easily analyze your real estate portfolios by square footage, building type, etc. With the right data and insight, companies can identify cost savings opportunities and high ROI projects across a complex portfolio.
• Increase tenant trust. Good data promotes honest transparency, which tenants rely on to know that they are paying only for what they use. Tenants and other investors also have high expectations for energy efficiency and sustainability with the data and reporting to back up your efforts.
• Drive sustainable growth. Sustainability measures are more than just green-washing, but an evolution to your business model. To embed sustainability considerations into decision-making and strategic planning, executives, employees and even tenants alike must be engaged in the mission.