With net-zero carbon targets now well established, businesses are taking steps towards developing and executing pathways toward more sustainable operations. Major corporates are leading the way – larger workforces and more functional space require greater attention and longer lead-in time. Our experience is that many medium and smaller occupiers are at a much earlier engagement stage. Still, the march to net-zero will be essential for all market tiers.
Property is an excellent place to begin this journey, given that occupational space is a significant component of most businesses’ carbon footprints. This idea has implications for both landlords and occupiers of London’s office landscape. Both parties share the net-zero challenge, so addressing the environmental performance of buildings is a win-win.
At the foundation is a good dialogue between the two. We are seeing greater engagement between landlords and occupiers in the following areas:
It is well-rehearsed that data is crucial in this sphere – the collection, reporting and benchmarking of data underpins every ESG and net-zero carbon strategy. We are now seeing a real push for data collection in our buildings, not just from landlords but occupiers too. An increasingly holistic approach demands that Scope 3 (indirect) emissions are accounted for – meaning landlords are cognisant of their occupiers’ emissions. The tide is turning, and occupiers, once reticent, are more willing to engage in this regard, but forging and managing a trusting relationship between the parties is key.
Green lease clauses convert the intentions of the parties to co-operate and share data into a contractual commitment. These are increasingly sought by landlords and should not be viewed as a burden for the occupier as the idea is to work in partnership. Meaningful progress is best achieved when the right people are at the table. If a landlord wants to engage with an occupier on green leases, a more holistic approach may be taken by their ESG team than their commercial leasing team, especially where the ESG agenda hasn’t yet infiltrated decision making at all levels.
Occupier strategy approaching lease events
Upcoming lease breaks and expiries represent a crucial time for occupiers to step back and evaluate how well their space meets their evolving needs, especially emerging from the pandemic and with ESG now front and centre. Landlord engagement is vital – if an occupier sits within a poorly performing building with little apparent appetite from the landlord, this must play into deciding whether to stay upon break or expiry. Improvements, however, can happen any time in the occupational cycle, and with Minimum Energy Efficiency Standards moving beyond only being relevant at the point of letting, there will be more desire for action throughout a tenancy. Landlords and occupiers should be continually engaged to be cognisant of each other’s strategy and how ultimately, the space can evolve to the benefit of both.
Sharing costs on improvement works
With a shared goal comes the potential for shared solutions. Improvements to environmental performance cannot simply be categorised as either the landlord’s or occupier’s responsibility. Traditionally, a landlord would be instigating the works, but the occupier benefits from occupational savings over time. The outlay is increasingly seen as a win-win and shared investment for both parties. Both meet their ESG agendas, the landlord meets their statutory obligations, and the occupier achieves operational savings.
It is clear that partnership, cooperation and collaboration between landlord and occupier underpin all of this – and property management is at the cornerstone. Property managers not only harness trust and dialogue between the parties but have the systems and networks in place to support the actions required.
Montagu Evans are members of the BBP Managing Agent Partnership and is on the Owner Occupier forum, which shares best practices in collaboration.