The Atlanta City Council has decided to take a page from the play book of other major cities and implement energy efficiency measures affecting large buildings and their owners. Starting July 20, all buildings over 50,000 square feet in Atlanta had to comply with the Commercial Buildings Energy Efficiency Ordinance, which requires building owners to benchmark and report their facility’s annual energy usage and to perform an energy audit (a detailed assessment of how a building could improve its performance by upgrading its equipment and systems) every ten years.
Both municipal and privately-owned buildings must comply with the ordinance or face a fine of $1,000 per property. Next year, the ordinance will expand to include buildings encompassing 25,000 square feet or more. By enacting this ordinance, Atlanta becomes the first city in the Southeast to pass legislation targeting energy reduction in commercial buildings. Passed unanimously by the Council in April, the new rules will affect 2,350 large buildings—or 80 percent of Atlanta’s commercial sector, according to an article in Energy Manager Today.
A Program of the City Energy Project
The Commercial Buildings Energy Efficiency Ordinance is part of the City of Atlanta’s work under the City Energy Project, a national initiative from the Institute for Market Transformation (IMT), a non-profit based in Washington, D.C., and the Natural Resources Defense Council (NRDC), a New York City-based environmental advocacy group. These two organizations are developing locally tailored plans and programs to help cities reduce carbon pollution from buildings.
Boston, Chicago, Denver, Houston, Kansas City (Mo.), Los Angeles, Orlando, Philadelphia, and Salt Lake City are also participants in the City Energy Project. The City Energy Project claims that participants will cut pollution by amounts equivalent to taking 1.4 million cars off the road, saving residents and businesses a combined total of nearly $1 billion annually on their energy bills.
Purported Benefits
The Atlanta City Council maintains that the ordinance will result in a 20 percent reduction in commercial energy consumption by 2030, create more than one thousand jobs per year (but does not specify how), and cut greenhouse gas emissions by 50 percent from 2013 levels by 2030. Information collected by the program will be made public in an effort to drive market demand for more energy-efficient buildings.
Proponents of these rules also contend that the sharing of data on buildings’ energy use will provide the owners and occupants of those facilities better information about the true cost of operating them, allowing prospective buyers and leasees to make more informed decisions. In an article published by Fierceenergy,com, Cliff Majersik, executive director, IMT says, “Benchmarking data establishes a baseline as to how a building is currently performing. In conjunction with this information, energy audits and tuning give building owners actionable information on the financial impacts of potential improvements and empower these owners to focus on the most cost-effective options for their building and their business. Providing building performance to the public informs leasing and purchasing decisions; it enables the market to function properly and reward efficient buildings with higher occupancy and faster lease-up.”
Will California-Style Mandates Follow?
If buildings owners, however, are eventually compelled to make their buildings more energy-efficient in response to mandated energy audits and data collection, rents will likely rise. Tenants with tenant improvement allowances may have to spend those funds on items like lighting replacement rather than new paint and furniture.
The precedent has already been set for costly, government-mandated energy improvements. California has enacted Title 24, a slew of building-code revisions aimed at pushing California’s residential and commercial buildings toward Zero Net Energy (ZNE). In a ZNE building, the annual energy consumption is equal to its annual production of renewable energy. Under Title 24, all new residential construction must be ZNE by 2020, with all new commercial buildings’ attaining this goal by 2030.
According to an article in the National Law Review, Title 24 requires changes like “installation and/or replacement of certain fixtures and installation of certain devices and circuits connected to a time clock to automatically turn outlets off, all in an effort to reduce energy consumption. These fixtures and devices include, but are not limited to, water conserving plumbing fixtures, ‘smart’ thermostat systems, occupancy sensors and automatic shut off controls. It has been estimated that the cost of compliance to meet such requirements will range from $3.00/square foot to $6.00/square foot.”
For Now, a Potentially Useful Tool
For the time being in Atlanta, tenants will eventually be able to use buildings’ energy data as a factor in leasing decisions. When choosing a space or renegotiating a lease, tenants will be able to weigh the cost of operating the building—based on the collected data—against rental rates and other expenses.
Later on, though, tenants may face rent increases resulting from the owner’s having to alter the building’s equipment and systems. How much could rents rise? That has yet to be seen, as the possibility of expanded regulation is purely speculative—for now.
Blog contributed by Bubba Chrismer, Managing Principal of Cresa Atlanta. Bubba has represented tenants in the Metro-Atlanta area for more than 30 years and has vast expertise in negotiating leases with all types of building owners. For more information, contact Bubba at 404-446-1574 or bchrismer@cresa.com.