Not much evidence of green lease schedules affecting a tenant's occupation: Tristan Gannon, CBRE (left); Geoff Warren, CBRE

CitySwitch signatories on Wednesday heard what many already know – green leases are harder to implement across smaller tenancies, though smaller tenancies make up the majority of the market. At the upper end of the market, however, there is encouraging progress in the field.

The insights came from an event hosted by CitySwitch to provide an update on the progress of green leasing in the industry, with the event title borrowed from our The Tenants and Landlords Guide to Happiness ebook series, whose final chapter was released to co-incide with the event.

Pip Harley, CitySwitch
Huge opportunities with smaller tenants: Tristan Gannon, left, with Geoff Warren
The “happiness book” starred
Craig Wood, EO Lighting
From Energy Action: Ben McCluskey, John Durrant, Emma Monks

The event featured presentations by CitySwitch program manager Pip Harley from the City of Sydney, who provided a rundown of progress with the tenants engagement program; CBRE associate director, transaction management Tristan Gannon and Geoff Warren, senior director, NSW project management, who gave a reality check about the market take-up but also the huge opportunities; and Beck Dawson, general manager, corporate sustainability, Investa and Nicola Murphy, head of environmental sustainability, NAB, who stepped us through the benefits of green leasing.

See the ebook for interviews with Ms Dawson and Ms Murphy on this topic.

According to Mr Warren it was important to be able to communicate to tenants the economic benefits that accrued from green leasing, which included improved staff retention and productivity.

Sustainability innovations like green leases tended to polarise occupiers, Mr Gannon said. While large occupiers had a high propensity to implement and seek out sustainable practices, smaller ones often did not have the resources to pursue these agreements.

“The smaller users who transact a lot less frequently, and perhaps are less confident in terms of their real estate negotiations… have less of an appetite to seek out and implement these sustainable practices,” he said.

Mr Warren said these smaller companies were more focused on being near clients and transport.

Massive opportunity to get small players involved

There was, however, a massive opportunity for best practice leases to be brought into play for smaller tenants if the business benefits were properly communicated.

Mr Gannon said there was huge potential because of the significant part of the leasing market smaller players comprised.

“Our research shows up to 60-70 per cent of demand in the Sydney CBD is from users below 1000 square metres,” he said.

“These smaller groups are often in second, third and fourth generation buildings that are running less efficiently than the larger groups in purpose-built new buildings. So it’s very important that we engage these small users and bring them along for the journey.”

Mr Gannon said there were four key obstacles to green leases:

  • tenant instructions to minimise obligations and maximise flexibility in the lease
  • ambiguity
  • scepticism regarding benefits
  • base building standards – tenant doesn’t want to be tied to the landlord increasing sustainable objectives for the building, and having to retrofit to meet higher standards landlord seeks

“Despite the obstacles, I personally have never experienced a green lease schedule or environmental initiative in a document adversely affecting a tenant’s occupation,” Mr Gannon said.

Its almost like were concerned about something thats not eventuating.

Moving forward, Mr Gannon said increased education and awareness was key to progressing green leases. Leasing agents, tenant reps and lawyers needed to get on board to educate tenants regarding the benefits.

Early and definitive disclosure was another way to move forward.

“We think we need to move away from a tenant being provided with a green lease schedule or with environmental initiatives for a building when they receive the draft lease. We think this type of information should be outlined in the heads of agreement stage,” Mr Gannon said.

Proactive enforcement on both sides needed to happen too.

For small, cash-strapped tenants, Mr Gannon suggested, perhaps the landlord could fund some of the environmental initiatives upfront and rentalise the cost of that through the lease, so both players could realise the benefits.

CitySwitch reveals record growth in 2014 progress report

The CitySwitch Green Office program, which engages with tenants to improve office energy efficiency, has been at the forefront of the push for green leases, which Ms Harley gave a rundown of during her presentation.

The past 12 months has been a bumper year for the program, with 127 new signatories – a growth rate of 30 per cent – and a record 840 efficiency projects on the go, according to its latest progress report, she said.

By the end of 2014 the national program had 642 tenancies under its wing covering over 2.3 million square metres of net lettable area, with signatories last year cutting 86,506 tonnes of carbon emissions and reducing energy by 75 gigawatt-hours. The resulting savings have been $14.4 million.

CitySwitch national program manager Esther Bailey said in a media statement that “CitySwitch signatories continue to demonstrate a growing level of commitment to the program and to reducing their carbon impact”.

“This, combined with confidence to set and achieve ambitious goals with the support of the program, is reflected in the increased energy and cost saving results,” she said.

Efficiency projects spanned a range of areas, with the most popular being behaviour change programs, followed by reporting/monitoring, equipment upgrades, lighting retrofits and waste programs.

Green leases comprised 2.6 per cent of projects undertaken by CitySwitch signatories.

Victoria held the most signatories (196) and tenancies (241) signed up to the program, though NSW had close to twice Victoria’s net lettable area covered, coming in at almost 1.2 million sq m.

The ultimate aim of the program is getting tenants to achieve a four star NABERS Energy tenancy rating. At the end of 2014, 135 tenancies had achieved this.

The program now supports over 650 offices, representing more than 2.5 million square metres of office space.