Energy-Efficient Lighting Increases Occupancy and Real Property Value for Office Buildings
The financial performance and valuation of commercial office real estate is to a large part determined by
the security of its cash flow. The likelihood that tenants might leave a building, or not lease it in the first
place because of its inadequate sustainability performance, is gaining recognition as a key risk by
building owners.
Office space is no longer a commodity choice. Selecting an office is a strategic decision for the corporate
tenant based on the need to increase productivity and collaboration of its workforce to drive
profitability. The visual appeal of the office space is one of the key components for selection.
Lighting plays an integral role in the comfort and aesthetics aspects of occupancy. It also assists your
tenants in meeting business objectives including attracting and retaining key talent, lower absenteeism,
and improved corporate reputation from the public association with energy efficiency and
environmental responsibility practiced by the property owner.
The Trend for Open Office Space Affects Occupancy
Needs for office space are also changing. Less space is being allocated per person and more open office
space designs are in demand based on changes in the way work gets done. It’s estimated that some
form of open office layout is in use in 60 percent of commercial office buildings. But the change in space
allocations also requires a change in lighting design to help tenants achieve workforce improvements
that align with overall business objectives.
Open office spaces are good for building owners because they allow more use of natural daylight
without walls to block it out. This means less artificial light can be used during the work day as lighting
controls automatically adjust the lighting in response to the level of natural light. If LED lighting is
selected, it’s likely that fewer luminaires (fixtures) will be needed to deliver the targeted light levels,
reducing upfront costs for the upgrade or renovation.
Quality lighting has been proven to increase worker well-being, decrease absenteeism and reduce the
time needed to complete tasks. Fewer errors in data entry, higher morale and greater team
collaboration are also benefits from reducing the stress caused by glare and overly bright lighting. A
study conducted by the American Society of Interior Design revealed that 68 percent of employees
complain about the lighting in their workspace.
In a paper produced by the World Global Business Council, it was reported that worker productivity
increases by 23 percent as a result of better lighting matched to specific tasks and uses of space profiles.
Better ventilation and individual temperature control only contributed 11 percent and 3 percent,
respectively. 1
By choosing to install energy-efficient LED lighting solutions, your commercial office building will
become more attractive to potential tenants who are then more likely to become long-term occupants
1
Business Case for Green Buildings Report, World Global Business Council, April 11, 2013
due to the benefits realized for their companies. Easily programmable controls further enhance
performance, help to increase energy efficiency, and allow for broad customization. Multiple zones and
scenes can be created, increasing configurability, so lighting systems can mirror and support changing
arrangements of people, furniture and tasks. You’ll also be able to demonstrate a more secure cash flow
which correlates to increased real property value.
Impact to Real Property Value
A commercial office building’s sustainability performance has a positive correlation to its value and
makes it more competitive in the marketplace. A higher occupancy rate translates to a more secure cash
flow, lowering risk, reducing cap rates and increasing property value. Energy code compliance achieved
through the installation of energy-efficient lighting solutions reduces regulatory risk which will also
decrease cap rates.
Installing the latest energy-efficient technology in fixtures, lamps, ballasts and controls can reduce
energy costs by more than 50percent. This reduction in costs carries through to an equal increase in net
operating income (NOI). The reduced maintenance burden of this efficient lighting system will also
increase NOI. The resultant reduction in energy demand mitigates the risks associated with fluctuating
energy prices, stabilizing the NOI increase from year to year.
For example, if a building owner avoids spending $20,000 on utilities, operating income is increased by
the same amount. Let’s say the current capitalization rate of rental building asset value is approximately
7 percent. Therefore, dividing the $20,000 by .07, the asset value is increased by $285,714 or 14.3 times
the savings.
With the availability of rebates, incentives and tax discounts, the payback for energy-efficient lighting
systems can be less than a year or two. But, as demonstrated, the impact to real property value can be
significant. If you want to improve the lease rate and real property value of your commercial office
portfolio, consider the impact of energy-efficient lighting and controls.
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