Schneider Electric : How sustainable commercial real estate can make your business more profitable

In the first post of this series on commercial real estate, I talked about the urgency to transform properties to support an 'all-electric, all-digital' future. In this post, I will zoom in on one specific pillar of the Schneider Electric vision for Buildings of the Future: the tangible value of sustainability.

The evolving role of sustainability on today's buildings

Commercial real estate sits at crossroads between high finance, the quest for productivity, and ever-evolving regulations.

Sustainability touches on each of these factors. Now that tenants and their employees are increasingly seeking spaces that support their own sustainability commitments and values, it has essentially become a requirement that all new builds have some aspects of 'green' design - and certification - to help properties compete, as well as meet emissions regulations.

However, there are many other markets and business pressures to consider. For example, the most desirable tenants are also the ones wanting to minimize energy-related operating expenses. They are increasingly aware that green-certified buildings in many different countries are shown to reduce energy consumption by up to 30% - or even 50% in some cases - over conventional buildings.

Maximizing occupancy continues to be challenging, as building owners need to find ways to attract and keep tenants while growing rental income.

Additionally, real estate investors and owners need to keep property and stock value high while finding affordable financing when they need it.

ESG - Creating long- and short-term value

As Larry Fink of global asset management firm Blackrock said, "Over the course of 2020, we have seen how purposeful companies, with better environmental, social, and governance (ESG) profiles, have outperformed their peers." S&P Global reported that during the first 12 months of the COVID-19 pandemic, 19 out of 26 large ESG funds analyzed performed better than the S&P 500, with one rising by 55%.

But how does ESG relate to sustainability and efficiency in commercial real estate?

Head of Sustainable Investing for APAC Real Assets for BlackRock, Wincel Kaufmann, sees it this way, "On the 'E' in ESG, we focus on energy efficiency in all of the buildings that we manage, as this has both environmental and financial impact."

It is clear that the benefits of sustainability go beyond higher stock valuation.

In a report by Deloitte, U.K. Director Jon Lovell says, "There is no question that sustainability is now a fundamental commercial real estate concern affecting long-term value generation and short-term profitability, especially in the context of mature markets such as the United States, Western Europe, and Australia." Deloitte summarizes numerous sustainability benefits, including that green buildings "are estimated to consume 29 to 50 percent less energy … emit 33 to 39 percent less CO₂ … depreciate less quickly than others … have higher tenant attraction, rents, and sale prices … [and receive broader payback through] lower-cost financing, lower operating expenses, property tax rebates, and discounts on insurance premiums."

The Journal of Corporate Real Estate featured a review of over 90 global sustainability publications that agree with Deloitte on many points, citing one U.S. study that found "there is an average rental premium of 4-5% and sales premium of 25-26% for buildings with environmental certifications." In contrast, a Netherlands study found that buildings with "lower energy performance ratings (EPC) receive, on average, rental income which is 6.5% lower." A Finnish university conducted a more recent review of 70 global studies, finding that, on average, green-certified buildings "enjoy rental premiums varying between 0% and 23% [and] between 1% and 17% increased occupancy."

Finally, green buildings have greater power in attracting capital. As recently reported in the New York Times, there is now a "larger movement of investors steering money toward sustainable real estate, thanks to new technology and tougher standards that allow for better tracking of a development's ability to reduce its carbon footprint."

Sustainability is financially net positive

Many commercial real estate owners and investors may still think that building new or retrofitting for better sustainability is too costly. But many studies have repeatedly shown that there is only a marginal increase in cost - or no statistical difference in cost at all - for a more sustainable building. In fact, one U.S. study showed that when considering all aspects of savings (energy, water, waste, operations, maintenance, etc.), the total financial benefits can be over 10 times the average initial investment for design and construction.

A prime example of a new building that generates huge rewards is our Schneider Electric Intencity building in Grenoble, France. Expected to achieve the highest LEED Platinum rating ever given, the digital BIM-designed building:

• Consumes only one-eighth of the average energy consumption for buildings in Europe and will soon operate at net-zero energy.
• Can supply neighboring facilities and boost its own resilience with its on-site renewable energy generation and storage.

This is a quantum leap in sustainability, made possible with only a 3-4% higher construction cost, representing a payback within 6 years.

But impressive gains can also be found in building retrofits, with minimal business disruption. The 20-year-old Schneider Electric headquarters 'Le Hive' in Paris, where I work every day, underwent a massive sustainability upgrade while the facility remained occupied and operational. By integrating all building systems into a single digital infrastructure and adding intelligent load controls, This facility reduced energy consumption for HVAC and lighting by 50% to 78 kWh/m²/year. It also added on-site renewable energy production and became the world's first ISO 50001-certified building.

Decarbonizing every stage of the building lifecycle

Many organizations are making commitments to sustainability, even announcing net-zero goals. But it is the actions behind these commitments that will determine success.

Digitalization and electrification offer opportunities to decarbonize at each stage of the building lifecycle:

• Design - Intelligent tools - for example, simulation-design software by ETAP and LayoutFast - help engineers design carbon out of electrical distribution and switchgear equipment by minimizing copper, eliminating waste, and minimizing installation labor.
• Construction - Building information modeling (BIM) has progressed to 5D BIM (3D physical/functional modeling, plus time and cost dimensions), thanks to solutions like MTWO from our partner RIB. These new tools help decarbonize by streamlining construction scheduling, i.e., orchestrating daily development projects to avoid costly waste, unproductive site visits, and commissioning postponement.
• Operation and maintenance - As I noted in my last post, 82% of potential energy savings still remains untapped in today's commercial buildings. This is a two-pronged opportunity because you will cut OpEx and energy-related emissions by minimizing energy consumption. The technology needed to actively manage energy is available today and delivers a fast ROI. When planning new builds or retrofits, include an integrated platform that unifies building management, power management, and workplace management. Integrated workplace management systems (IWMS), like Planon Universe, are helping building owners, operators, and corporate occupiers benefit from integrating building systems and business processes while avoiding 'big data' overload. Data from multiple systems is converted to actionable insights and automated actions. Systems go beyond measuring energy consumption and emissions to helping assess building sustainability, validating real estate performance, and supporting the execution of targeted improvements to save time and costs. By using these tools - and the BIM 'digital twin' created during the design and construction stages - you will simplify regulatory compliance reporting and find up to 30% in energy savings. We now see clients reinvest these savings to further decarbonization initiatives to achieve net-zero - or even positive energy - buildings.

Another important step is -to minimize embodied carbon at every stage of the lifecycle. This is accomplished by sourcing products manufactured with maximum efficiency and reporting on their lifecycle carbon footprint. Schneider Electric Green Premium products do just that - ensuring the carbon curve is flattened at every possible juncture while taking the headache out of carbon disclosure.

3 steps to get started with sustainability

The above considerations may seem a bit daunting at first. Fortunately, there is a simple 3-step path you can take to make your sustainability journey simpler:

1. Learn for free. Schneider Electric University is a free, high-value resource where you can learn best practices for making your entire building portfolio more sustainable, efficient, resilient, and people-centric.
2. Consult with experts. Hold a workshop with an expert - such as your local Schneider Electric representative or EcoXpert Partner - to discuss your sustainability strategy when you are ready.
3. Connect to the cloud. Today's most powerful sustainability solutions leverage the cloud for high scalability, from a single building to a growing portfolio. EcoStruxure Building Advisor and Resource Advisor can help you start optimizing in real-time and removing carbon from day one.

In my next post, I will explain how digitalization helps ensure the resilience of your building operations from unforeseen events like cyberattacks, pandemics, and severe weather events. To see how Schneider Electric supports this new vision for the future, discover our EcoStruxure IoT solutions for real estate.