Navigant Research Blog

Commercial Benchmarking Makes Efficiency the New Penthouse Suite

Eric Bloom — August 23, 2010

If you’re a commercial building tenant looking for new office space, you’re probably comparing a few potential spaces on the basis of rent, location, the condition of the space, and maybe even the carpet color. One consideration you’re probably not looking at is the energy bills the space typically commands, either because you don’t care or because they’re simply not available.

Enter commercial benchmarking laws. These laws, which are starting to appear at the city, state, and national level worldwide, can transform the role that energy efficiency plays in driving tenant and owner decisions. The idea is that, when tenants have access to an energy profile for office space they’re considering, they may compare the energy costs of different spaces. Efficient spaces end up more desirable and less efficient spaces face higher vacancy rates. In turn, building owners looking to minimize vacancy rates, invest in energy efficiency upgrades to keep their buildings competitive in the market.

In 2007, the State of California was the first jurisdiction in the U.S. to establish a commercial benchmarking law. The law requires commercial building owners to disclose their benchmark data to prospective tenants, buyers, and lenders. Since then, other jurisdictions such as Washington, DC, Austin, TX, the state of Washington, and New York City, have followed with similar laws.

Internationally, a national-scale mandatory disclosure program is soon to launch in Australia, where all commercial buildings will have to obtain a NABERS rating (an energy benchmarking system) and a Building Energy Efficiency Certificate (BEEC), which provides a detailed energy profile. In the EU, Energy Performance Certificates (EPCs) are starting to provide a similar kind of differentiation, though many of the EPCs throughout Europe are based on ideal models rather than actual performance and are not yet mandatory in the commercial building sector.

Many of these programs take a number of years to fall into place. After the laws pass, building owners start to collect utility bills. After building owners have had a chance to collect a full year’s data, they are typically obligated to disclose that information.

In the U.S., the ENERGY STAR commercial benchmarking program is a voluntary program that evaluates commercial buildings and rewards the top 25% of performers with an ENERGY STAR label. Since the program was established in 1999, the ENERGY STAR label has been applied to about 1.6 billion sf of commercial space. Although the ENERGY STAR program is primarily voluntary, many of the benchmarking programs mentioned above use it as their foundation.

While the majority of these programs are in their nascent stages at this point, they will drive interest in energy efficiency in investment decisions and market differentiation.

One Response to “Commercial Benchmarking Makes Efficiency the New Penthouse Suite”

  1. [...] it comes to the holy grail of retrofits, the investment-grade audit. And, with a growing number of new laws that will require them to provide energy bills to prospective tenants and buyers in major U…, large property owners are starting to consider ways to expedite the retrofit process in any way [...]

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