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Smaller Buildings Face Challenges Reaching Energy Efficiency Goals

Increasingly punitive state and local regulations. Skyrocketing energy costs. Mounting inventor and tenant demand for sustainability. All buildings, even the smaller ones, are under more pressure than ever to consume less energy. But unlike skyscrapers or super-regional malls, smaller buildings often have smaller budgets for upgrades needed to make them more energy efficient.

Large property owners continue to announce their sustainability plans as part of massive ESG initiatives, pledging millions to improve energy efficiency. SL Green Realty Corp., Manhattan’s largest office landlord, has plans for $85 million in energy efficiency projects across its skyscraper-laden portfolio over the next ten years. These large-scale investments are a huge step forward toward our zero-carbon future, but they are not always possible for all types of buildings or owners. SL Green owns large Class A office towers. But what about the proverbial “little guy,” the smaller owners that generally own buildings under 50,000 square feet? While small building owners’ commitment to energy efficiency is just as strong as that of the leading property owners, their budgets for incorporating sustainable programs just don’t match.

Ninety percent of the 5.9 million commercial buildings in the U.S. are 50,000 square feet or less, accounting for nearly 50 percent of total commercial floor space, according to the U.S. Energy Information Administration’s latest survey on commercial buildings’ energy consumption. And this group of buildings is falling behind in energy efficiency and sustainability efforts. It’s not for lack of trying. Findings from building energy management and optimization technology firm GridPoint’s recent survey show that there has been investment from the smaller owners. Of the respondents that own buildings under 50,000 square feet, 70 percent have already invested in energy-efficient lighting, 59 percent have incorporated smart thermostats, and 49 percent have instituted utility energy efficiency programs. The least implemented strategies include carbon accounting reporting, EV charging, and submetering. Organizations with buildings averaging less than 50,000 square feet were significantly less likely to have made upgrades than their larger counterparts. 

Comparatively lower budgets are only one factor preventing smaller building owners from keeping pace with the energy-efficient upgrades. There is also the matter of staff. “The more sophisticated professional property management teams that manage commercial real estate’s larger buildings, they are on top of addressing new state and local regulations,” Rod Kauffman. President of BOMA Seattle King County said. “They’re figuring it out. They’re doing what they can. But a lot of the smaller properties are owned by partnerships and families, and they don’t have the big engineering team that oversees all the properties.”

There is also the issue of educating small building owners on energy efficiency mandates and the emergence of new technologies. States that institute new energy-efficient laws for commercial buildings have to identify these small building owners, which is no simple task, to make them aware not only of deadlines for new regulations but also of options available to them to help with the process of meeting these new demands.

But even with the funds, the proper guidance, and the knowledge, many small building owners can face another significant hurdle to staying on top of energy-efficient upgrades: age. The pool of small buildings in the U.S. consists of a great many older properties. Certain energy retrofits for older buildings can prove complicated and costly. They also pose a risk. Getting permits and opening walls to install a new energy-efficient system could expose features that weren’t violating building codes 50 years ago but are today. Such discoveries would trigger the need for additional upgrades to meet unanticipated code requirements. 

The challenges associated with reaching energy efficiency in our buildings don’t end there for small buildings. Oftentimes, the diminutive size of the property itself can prove a barrier. Suppose a building under 50,000 square feet has a parking facility on site. In that case, it will be a small parking facility, which would limit the ability to incorporate EV charging spaces. The owner could lose income or be in violation of service agreements if they replace a dedicated parking space with EV charging.

“It’s just a confluence of real challenges that are going to make a smaller building owner who wants to do something have difficulty executing it,” Kauffman said. “It’s going to be tougher for smaller buildings, especially since a lot of them are older, to meet all the government regulations, let alone the advantages of reducing energy costs.”

Despite the hurdles small building owners face in the pursuit of increasing energy efficiency at their properties, there are options that can help them achieve their goals. One of those options is time. Some states are giving owners of smaller properties additional time to comply with newly instituted energy efficiency regulations. In Washington State, while buildings over 220,000 square feet have a deadline of June 2026 to comply with the State Clean Buildings Performance Standard, owners of properties between 50,001 and 90,000 square feet have until June 2028 to comply. 

There’s financial assistance as well. Most states offer incentive programs for buildings that incorporate energy efficiency measures, as do many utility companies, providing everything from tax credits to rebates. Even a few new financing mechanisms, like Commercial Property Assessed Clean Energy and Resiliency (C-PACER) lending, can help small building owners secure funding for upgrades. The C-PACER program allows building owners to pursue long-term financing from private lenders to fund clean energy improvements and repay the loan via special assessments placed on the property and billed as part of the property owner’s annual property tax, with the collected funds being later remitted to the lender. C-PACER financing is already available in various states, including Washington, Tennessee, and Virginia.

Small building owners are at a clear disadvantage in the national pursuit of energy conservation in the built environment. Compared to large owners of large properties, owners of small buildings are hobbled by limited financing, the absence of expert property management teams, and even space. However, the motivation and commitment to instituting energy-efficient measures in some capacity remain robust among these owners. A full 90 percent of respondents to the GridPoint survey, the vast majority of which are decision-makers for small buildings, plan to increase their energy efficiency efforts in 2023.

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