Commercial real estate (CRE) has been hit hard over the past few years, impacted by the pandemic. Now with inflation running rampant, supply chain breakdowns, lower and inconsistent occupancy levels, topped off with soaring energy costs, it’s hard not to feel the pressure of cost cutting everywhere you turn!
The outlook for this winter isn’t very encouraging with prices being double what they were last November. According to a recent study from Deepki with 250 commercial asset managers based not only in England but Germany, France, Spain and Italy found that over half (53%) said their portfolios had seen an increase of 51%. The CEO of British Gas, Chris O’Shea told the BBC that high gas prices would be here for at least 18 months and possibly up to two years.
The so-called ‘energy crunch’ is starting to be felt across the economy, and commercial real estate is no exception. Let’s look at how the energy crunch is affecting CRE and how its impact on your bottom line.
Higher operating costs.
The most obvious effect of the energy crunch on landlords and tenants is higher operating costs. Regardless if it’s in the depth of winter or the height of summer, your margins are getting smaller and smaller as prices rise.
Luckily for property managers, there are plenty of ways they can reduce their expenses without affecting customer service or safety while maintaining ESG commitments like investing in green heating ventilation & air conditioning systems which will keep you on target to achieve your sustainability goals.
While there are a number of low-investment options available, such as changing behaviour patterns and using power strips, some of the most effective methods require a higher upfront investment but offer greater long-term savings potential. Examples include installing solar panels, upgrading hardware, and replacing traditional lighting fixtures with energy-efficient models.
Of course, this means it will take time and money to implement these changes; however, they can often offer tremendous long-term savings potential. The initial cost of solar panels may be significant, but you can enjoy power from clean and renewable sources for years down the road. Furthermore, by opting for more efficient hardware or LED lighting systems, you can reduce your monthly electricity bills by up to 80%. Although an initially high investment is required for such measures, the overall potential reward makes them well worth considering in any cost-savings or sustainability effort.
Difficulties passing along cost increases to tenants
While higher operating costs are certainly a problem for CRE landlords, often the costs are passed on to tenants through bills, service charge or rents. However, landlords are finding it difficult to do that in today’s market. Commercial real estate vacancy rates are still relatively high,
London saw a 5.8% increase in office real estate vacancies between 2019 and 2022. This gives tenants more negotiating power when it comes to rents. As a result, many landlords are having to swallow higher operating costs rather than pass them along to their tenants.
The office space is an important factor in attracting commercial tenants. As the workforce becomes younger and more tech-driven, CRE leaders must consider how they can modernise their properties to meet these new expectations of employees. With increasing concerns over the environment, today’s tenants have a new imperative to consider when renting office space. Research shows that the demand for sustainable real estate is on the rise. Landlords should make sustainability a high-priority if they want to meet the expectations of today’s tenants.
A way for commercial real estate landlords to differentiate in the market is to offer a much more efficient building and therefore pass on lower energy bills.
HVAC impact on energy efficiency
The HVAC (heating, ventilation, air con) system in a typical office building is responsible for approximately 40% of the buildings’ energy consumption. Smart HVAC systems can see an average of 17% of energy savings, however, a lot of factors influence this.
Incube Space have gone further, launching CubeOS, a predictive HVAC optimisation platform. CubeOS pro-actively adapts heating, cooling and ventilation settings automatically, based on real-time changes to space utilisation. This has shown energy savings of up to 50%.
Dynamic solutions such as CubeOS trump traditional set-and -forget or reactive approaches and help reduce energy demand for the same or better output. Predictive systems anticipate what changes will be needed and try to counter negative changes in the indoor environment or thermal comfort, and use less energy to achieve it. A smart HVAC system does not need expensive hardware upgrades and can be implemented in hours with a software integration making it a worthwhile investment for office buildings, old or new. Not only will it save you money on energy costs, but it will also improve indoor air quality and thermal comfort for occupiers.
There is a range of solutions in the market tackling the issue of inefficient HVAC in different ways. Often, you’ll find systems that use weather data to know when to use air from outside to ventilate a building. This can be timed so that air can be brought in which will require the lowest change in temperature and therefore reduce energy cost from heating or cooling air.
Incube Space believe by being proactive and using space utilisation data they not only ensure optimal energy efficiency but optimal indoor air quality and thermal comfort for occupiers as and when they need it. Incube Space reduce waste of ventilating zones on high during low to no use.
Conversely, by countering changes to the indoor environment before required it enables HVAC systems to run with much lower fan speeds, drastically reducing power consumption to achieve better results.
Often in an office, you’ll find people are too cold when set temperatures are in the correct range. However, fan speed has not been taken into account. This is where the wind chill factor affects occupier comfort. And while the temperature will never suit everyone all of the time, ensuring the best air quality and visibility of the indoor environment hugely impacts comfort.
Ultimately when we look at smart solutions to reduce energy costs and waste, we need to ensure it does their main job of ensuring comfort for occupiers. So, as we go forward let’s look at smart HVAC solutions to combat the energy crunch, and offer higher quality and cost-efficient spaces that also care for our planet.
Upgrading to a smart HVAC system is one of the most effective ways to save money and maintain occupant comfort.