After a summer spent on GRESB (check our new feature, the GRESB CSR Benchmark Report), September and October have been filled with "green building in practice." ("Green building in theory," i.e., academic research on the topic, will follow in a post next week.) One of the recent highlights was an event at the Philips Lighting Center (in, well, Eindhoven, the Netherlands), where you can see the latest in lighting. There are simulations of an industrial facility (complete with assembly line), an office, some different retail set-ups, and a hotel room. LED is clearly the new now, with fast paybacks, and substantially more lumen, that are also much nicer on the eyes. But the energy efficiency paradox remains, and the market is relatively slow in adopting this new technology. Barriers? Uncertainty about the real economic life (the Chinese do not help by flooding the market with sometimes inferior products, thus disappointing consumers), upfront financing cost (Philips provides payment per lumen, so no upfront cost, but that comes at a price...) and the practicality of replacing fixtures. And, the price of LED comes down fast, so some owners/managers simply wait for an even better point on the technology curve. Interestingly, part of the sales story is not so much about cost savings anymore, but more about consumer satisfaction, employee productivity and even patient recovery (the HealWell product). ProLogis, Corio, and CBRE Global Investors are believers. The former come in purely from a cost perspective, the second is all about the "shopping experience" and the third is about cost & productivity. Or maybe, just about offering a better product in a marketplace that's otherwise deeply depressed... (Holland no longer talks about a "green premium," it's all about writing off less.) Here are the slides of GRESB, Philips, ProLogis, Corio, and CBRE Global Investors):
What a difference with the US real estate market: cap rates are at historic lows and the real estate market has priced in the recovery. Managers are optimistic (investors will, hopefully, follow). And energy efficiency is no longer a dirty word. At least, if the GRESB New York event, co-organized with CBRE, PREA and the USGBC, is an indication. More than a hundred people heard Steve Furnary (Clarion Partners), Mitch Rudin (Brookfield Office) and Sukanya Paciorek (Vornado) talk about the value of sustainability to their organization, with the boldest claim certainly coming from Steve -- Clarion Partners will be leading this space. OK. That's statement. In the meantime, many companies want to lead in sustainability. The CBRE Group just announced their Real Green Research Challenge: $1mln. for research on energy efficiency & buildings. RREEF (now safely back in German hands, hope that hug won't be too long and too hard) just released a new research report on sustainbility metrics. No lack of ambition in that paper: "[the authors] recommend some basic principles, including a reduced set of key performance indicators, standardization across regions, alignment with sustainability drivers, and specificity to major user groups." Be careful what you wish for: the EU energy label is standardized, but certainly lacks the power that the Energy Star label commands in the marketplace!
That market power, which must scare the EPA from time to time, was once again displayed in a recent Energy Star partner meeting. I'm not a "partner" of Energy Star, but I had the pleasure to mingle with people that really understand energy efficiency (always a delight for an economist). The good news: a new CBECS is on the way. Well, don't start cheering yet. Data on 2012 will be collected in 2013. With some luck, results will be out in 2014. Some people are really nervous about the potential shift in the benchmark, which is the baseline for the Energy Star score and label. I'm a little less concerned: the energy efficiency of the average building does not change much over time -- the natural shake-out of older vintage buildings and the addition of new buildings will shift the stock, but very slowly (although the EPA has tracked 36,000 buildings over a three-year period, and the average reduction was about 2% per year). More good news came from a panel including Hines, Shorenstein, Vornado and Brandywine -- tenant engagement is on top of their list, and many tricks are pulled to get tenants to think about their behavior. I'd like to see "O Power" like experiments for commercial real estate (Matt Kahn and I can help point out the outliers), more data on the impact of interventions (we just need a 1,000 datapoints), and some reality checks on what's feasible. Let's face it: the financial institution just wants computers on all day, all night, the data centers want back-up computation power on stand-by (this company does pretty cool stuff in the optimization of data centers), and the corporate CEO wants the lights in his office to be on, so people think he's there 24/7...
Some more exciting news, this time from Norway: the carbon tax will go to €55/ton in 2013. That's what economists like to see, pricing of externalities, so we all start thinking about better ways to save energy. I think that this picture paints too rosy a picture though:
