Energy Cost And Utilization Reductions Among Top Priorities In Today’s New Operating Environment

19 May, 2006, New York, NY

Office building owners, managers and tenants see implications of sustained high energy prices

Political and economic forces suggest high energy prices are here to stay, creating a fundamentally changed operating environment for office building owners, managers and tenants. According to the Cushman & Wakefield Business Briefing on Energy, reducing energy use and costs have become critical priorities.

“It is without question that as energy prices increase, higher rents will be required to support operating costs,” said Frank Freda, executive managing director, Client Solutions. “This impact will be compounded in less efficient buildings. For these reasons, it is imperative to examine all of the many available options to reduce energy consumption, and look into savings incentives at the federal, state and local levels.”

The average annual increase in energy demand between 1990 and 2005 was 1.5 percent per year. The most important driver of this demand growth was global economic expansion. According to the United Nations, total world GDP increased by an average 3.2 percent per year from 1990 to 2004. Fueling this growth was the emergence of India and China as major participants in the global economy. As these economies surged, so did their demand for oil. Over the past three years, world oil consumption grew far above average at 2.6 percent per year, the strongest three-year period since the end of the 1980s.

“According to the U.S. Department of Energy (DOE), Energy Information Agency, commercial users account for 18 percent of energy consumption, and office buildings are the largest single consumer within this segment,” said Mr. Freda. “As such, office buildings are among the users hardest hit in today’s high-cost energy environment.”

In 1999, U.S. office buildings consumed 1,089 trillion British Thermal Units (BTUs), 70 percent of which was electricity and 20.4 percent of which was natural gas, according to the DOE. Electricity is far and away the highest cost source of energy, currently at a price of $24.40 per million BTUs, compared with $9.90, $6.70, and $1.00 for oil, gas and coal respectively. In 2006, the price of all energy used in commercial buildings is forecast to be 23 percent above the level of 2003, and it is expected to remain at these elevated levels through 2009.

According to Mr. Freda, computer models are available to regulate heating and cooling, and new HVAC technologies like variable-air-volume systems can result in significant efficiency gains. Additionally, because electricity is the largest single energy source for commercial office buildings, renewable power resources (green power) will be critical in the future.

Energy Star and LEED (Leadership in Energy and Environmental Design) Green Building Rating System® certifications are among specific programs that can result in reduced operating costs, healthier work environments and positive public relations. Both provide objective, authoritative third-party validation of building operating efficiency. “These programs impact a building’s desirability for investors and tenants, and both are now expected to be major considerations in the face of rising energy costs,” Mr. Freda noted.

Cushman & Wakefield is widely recognized for promoting energy management and sustainability practices at its managed properties. The firm is a world leader in real estate services and provides clients with the highest-quality and most cost-efficient service in the industry. This high level of service is accomplished by combining best practices and technical expertise to enhance overall asset performance and value.

To find out more, obtain Cushman & Wakefield’s Business Briefing on Energy.

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Cushman & Wakefield is the world’s largest privately held real estate services firm. Founded in 1917, the firm has 189 offices in 57 countries around the globe, and 11,000+ talented professionals. Cushman & Wakefield delivers integrated solutions by actively advising, implementing and managing on behalf of landlords, tenants, and investors through every stage of the real estate process. These solutions include helping clients to buy, sell, finance, lease, and manage assets. C&W also provides valuation advice, strategic planning and research, portfolio analysis, and site selection and space location assistance, among many other advisory services. To find out more about Cushman & Wakefield, please call 1-800-376-3133.

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