10-Year Energy Retrofit Program Would Save Commercial Buildings $41.1B Annually

The green movement is still strong, but most owners and managers of commercial buildings over 10 years old are missing out on a great money-saving opportunity, according to Pike Research's "Energy Efficiency Retrofits for Commercial and Public Buildings" report. If the commercial property sector were to follow a 10-year energy retrofit agenda, it could ultimately reap over $41.1 billion in savings each year.

July 23, 2010
By Barbra Murray, Contributing Editor

The green movement is still strong, but most owners and managers of commercial buildings over 10 years old are missing out on a great money-saving opportunity, according to Pike Research’s “Energy Efficiency Retrofits for Commercial and Public Buildings” report. If the commercial property sector were to follow a 10-year energy retrofit agenda, it could ultimately reap over $41.1 billion in savings each year.

There’s a lot of space to be tackled. In the U.S., the pool of commercial buildings, which account for much of the country’s energy consumption and carbon emissions, total a whopping 79 billion square feet, 80 percent of which exists in structures that are over 10 years old. As per the report, the long-term financial and environmental benefits of retrofitting commercial and public properties is enormous, however, only a small percentage of commercial building owners have taken it upon themselves to engage in an energy retrofit program.

“Most of the focus on efficiency retrofits has been on public buildings,” Eric Bloom, a research analyst with Pike Research, told CPE.

Factors that have kept the commercial sector trailing the public sector in efficiency retrofits are familiar. “Awareness is an important issue for private building retrofits,” he adds. “And even with Energy Performance Contracts where owners don’t have to invest the money up front for retrofits, there is a reluctance to participate. It’s an awareness issue and a financial issue.”

While the 10-year program Pike Research analyzes would lead to an annual savings in energy expenses of $41.1 billion, it would cost commercial property owners a $22.5 billion annual investment to institute the changes over that 10-year period.

The economic slump has done little to help the situation, as commercial property owners have less financing available for investing relatively large sums of money in major energy efficient upgrades today, in return for substantial savings down the road. “The returns in the public sector aren’t what commercial building owners want to see,” Bloom notes. “The government will accept that it may take 10 to 20 years to see a return on the investment, but private owners are reluctant to invest in anything with more than a four- to five-year payback period; they may not want to hold on to a property for longer than that.”

However, if the prospect of substantial savings in energy expenses in the long run is not reason enough to entice the reluctant, energy retrofitting presents a reward that is more immediately tangible. Commercial building tenants and investors are becoming increasingly focused on the benefits of environmentally friendly properties, so the greener the building, the greater the value.

“The potential exists in the private sector for sustained growth and energy retrofits,” Bloom said. “The government has a stronger stomach for risks but the private sector is reaching the point where they see the benefits of this model. We’ll see an increase in private sector participation within the next four to five years and beyond. It will definitely catch up to the public sector, but it’s a matter of time.”