Buyers and tenants of commercial property are increasingly aware of energy costs. Further, they are aware of the steps that owners can take to reduce these costs, making energy-efficient commercial properties more competitive.

It’s no secret that energy is money — utility bills are a significant portion of a property’s monthly operating costs, usually equal to around 20% of rent. Nonresidential property owners are required to disclose these energy costs to buyers, tenants and mortgage lenders before signing an agreement. [20 Calif. Code of Regulations §§1680-1684]

Nonresidential buildings are held to various codes and regulations which keep utility costs down (somewhat). California’s standards, called CalGreen, apply to all new buildings, additions and alterations. These regulations go beyond the building itself, including requirements like parking for bicycles and electric vehicle charging stations.

The California Energy Commission also updates building standards every three years. Beginning January 1, 2020, newly built nonresidential buildings will consume 30% less energy — the decrease due mostly to lighting upgrades. Until then, the 2016 standards apply to new builds.

For nonresidential buildings built under the 2019 standards, which take effect January 1, 2020, the new standards demand:

  • improvements to indoor air quality with high-efficiency air filters;
  • LED lighting;
  • motion sensors in bathrooms for lights; and
  • new healthcare facilities to adopt energy-efficient, nonresidential building standards (they were previously exempt).

Commercial news source GlobeSt reports more buyers and tenants of industrial property are seeking out additional promises of energy savings. Industrial property owners are especially sensitive to a property’s energy demands, due to their buildings’ large size and special uses. An LEED (Leadership in Energy and Environmental Design) certification is the gold standard for industrial owners, and an easy way for interested buyers or tenants to ensure their energy costs will be lower than your standard building.

However, a certification is no guarantee of low energy costs. It’s important for a potential buyer or tenant of a commercial building to know the likely energy costs the property demands, even if the building claims to have a high degree of energy efficiency. Owners marketing their property will include an annual operating expenses sheet, which will break down expected utility costs alongside other expenses. [See the RPI Income Property Brokerage (IPB) suite of forms]

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Solar on every roof? New construction standards in California.