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IMT & RILA’s Industry Primer Takes Aim At Defining Retail Green Leasing

Retail space at the planned LEED Gold 837 Washington Street development in Manhattan’s Meatpacking District.

To date, there has been relatively little discussion on sustainability in retail leasing – the commentary has mostly focused on environmental obligations in office leases. But earlier this summer, the Retail Industry Leaders Association and the Institute for Market Transformation released a document the groups have dubbed the Retail Green Lease Primer, which aims “to educate real estate and leasing agents on the specific retail lease provisions necessary for achieving reductions in energy, waste, and water use – and cost.” Coupled with some recent green retail leasing activity we’ve noted previously here at gbNYC+, a shift in that focus could be on the horizon – good news for proponents of retail sustainability.

In describing the Primer, the groups note that “[w]hen it comes to investing in technologies and processes that promote more efficient and sustainable facilities, owners and retail tenants often don’t know how to start the conversation. This resource aims to solve this problem by presenting the 13 most important lease topics in a clear and simple format.” Particularly for smaller tenants in both retail and office settings this point continues to ring true: education is perhaps the most important first step in implementing green building and sustainability programs.

To that end, the Primer breaks down green retail leasing into five broad categories: (1) improving the base building and common areas; (2) improving interior tenant spaces; (3) aligning economic incentives to encourage green investments; (4) increasing access to information on resource use; and (5) clarifying access and control of key areas of the premises. Simple concepts, but important direction for retail landlords and tenants that are new to green leasing practices.

The specific topics that RILA and IMT identify in the Primer as apt for landlords and tenants to address as components to their green leasing efforts will likely be familiar to you: (1) the lease term; (2) the lease type; (3) permitted uses; (4) the leased premises; (5) capital improvement costs; (6) operating expenses; (7) tax benefits and other incentives; (8) utility metering; (9) utility data sharing; (10) tenant maintenance; (11) landlord maintenance; (12) trash and recycling; and (13) rooftop/ground access and control. Example lease provisions provided for each topic cross-reference sections in the BOMA Commercial Lease Guide, New York City’s Energy Aligned Clause, and other case studies.

The Primer itself is just two pages and, although much of the information it presents is not novel, the document should be viewed an important first step for a sector of the built environment that has slowly moved to embrace green leasing principles. “Retailers recognize that there are opportunities to improve the efficiency of the buildings they lease,” says Adam Siegel, vice president of sustainability & retail operations at RILA, “and green leasing is a tool to help do that.” The Primer does acknowledge that there is no one-size-fits-all approach to green leasing, and that “[e]ach company should assess the costs and benefits of each term before including it in their contracts.”

The Primer’s release is timely. Anecdotally, at least, we have started to see a push within the retail sector for more sustainable operations during the last year. For example, we wrote about the UK retailer Marks and Spencer’s “transformative” green lease policy back in April. Shortly thereafter, the Finnish real estate firm Sponda signed what it considered its first green lease with Nordea, a Swedish bank. In profiling the latter here at gbNYC+, we wrote:

Although we have yet to see private players in North America announce similarly prospective green leasing steps to guard against future regulatory changes impacting energy efficiency in the built environment, the possibility is worth considering. Indeed, in a climate where increased calls for more robust sets of building performance data seem to be driving much of the current backlash against green certification programs generally, it is not unreasonable to think that regulatory changes could aim to increase governments’ access to different types of data. In that regard, we will continue to look abroad for similar trends that might inform future developments in the North American green leasing markets. Stay tuned.

We will see if the Primer and RILA and IMT’s efforts do indeed help push North American green retail leasing practices forward during the final quarter of 2013. At the very least, they should increase the conversation and commentary around green retail leasing beyond the limited discussion that we have seen to date. You can download a copy of the Primer here, and request a copy of RILA’s 2013 Retail Sustainability Report here.

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