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Trillion Dollar Opportunity in Transforming Existing Buildings
If you had $3-$5 million to invest into a 50,000 sq ft office building could you significantly reduce energy consumption, improve space utilization, and increase worker productivity?
SES Consulting Inc.
It recently occurred to me that buildings play an outsized role in our economy. In developed countries, a majority of economic activity happens entirely within the walls of commercial and institutional buildings. The fact that I’ve been working in the building sector for my entire professional career and this only recently occurred to me is slightly embarrassing. Another fact that most of us know all too well is that most buildings don’t operate nearly as well as they could, and that this has very real impacts on everything from energy use to occupant comfort. Put these two things together and you start to realize that there is a huge economic opportunity in making existing buildings better.
How much opportunity you ask? I find it is useful to use a tangible example to get a sense of the scale of the opportunity. If we took a typical 50,000 sq ft office building and apply the trusty 3 – 30 – 300 rule (which corresponds approximately to energy – rent – payroll in $/sq ft/year) you end up with a total expenditure of just over $16.5 million/year. If we could reduce energy consumption by 50%, improve space utilization by 10%, and improve worker productivity by 5% that represents an economic benefit equal to $1 million/year. If you’re willing to accept a payback in the 3 – 5 year range, that gives you $3 - $5 million to work with. This is a far cry from the slice of $3/sq ft that we’re often trying to use to justify investments in building upgrades, with the benefits to occupants considered at best a bonus or side benefit, rather than the main driver.
If you scale this example up to cover all of the commercial buildings in the US and Canada, you end up with a number around $1 Trillion. A trillion dollars is a hard number to get your head around. Usually we only consider numbers that large in the context of the GDP of major economies and financial system bailouts. In this case, a trillion dollars investment in our buildings buys you a happier, healthier, more productive workforce while achieving a significant reduction in environmental impact and greenhouse gas emissions. Certainly, much more money than this has been spent with much fewer positive outcomes to show for it.
To bring this back to a more manageable context and
reframe it a little
bit, if you had $3-$5 million to invest into a 50,000 sq ft office
building could you significantly reduce energy consumption, improve
space utilization, and increase worker productivity? I certainly
believe this is possible and I hope to use the rest of this article to
convince you that the opportunity is real and achievable today, or at
least that it’s not entirely hogwash. The path to these outcomes is
certainly not straightforward and requires pulling together many
different components like deploying IOT and other smart building
technologies, lighting upgrades, space planning, renewable energy,
training and occupant engagement while also overcoming significant
3 - Energy
Let’s start out easy. Given our multi-million dollar budget to work with, can we spend a portion of that to reduce the energy consumption of a typical building by 50% or more? This might seem ambitious, and it is if you’re constrained by paybacks less than 5 years based solely on energy savings, but if we assume that we can leverage this investment to also access savings from the 30 and 300 segments then I believe that it isn’t all that hard.
Starting with just the basics, standard controls
and typical low hanging fruit can get you a good part of the way
there. More advanced controls features such as occupancy
detection and individual controls will take you further. Major lighting
upgrades with state of the art LEDs and improved controls will
significantly reduce lighting energy while improving lighting quality.
These fairly standard conservation measures could easily bring down
energy consumption by 30% in a typical office building while taking a
relatively small portion of our available budget. To go further,
we can turn to deeper retrofits such as heat recovery chillers and
envelope modifications to reduce heat loss/gain and increase the
availability of natural light. Finally, we even consider the
installation of solar PV to offset some of the remaining load. In many
cases, it could even be possible to achieve near net-zero energy
performance from existing buildings within the available budget while
setting us up to achieve gains in space utilization and occupant
30 – Space Utilization
Unlike energy, the space utilization part of the equation is less about reducing the cost per sq ft but rather increasing how efficiently the space is used. This really boils down to, “Can we do the same thing with less space?”
Undoubtedly, better space planning with more efficient layouts can play a role here. But the real opportunity lies in using better data about the number and location of occupants to allocate space more effectively. As anyone who works in an office can attest to, rarely are all desks fully occupied. In a survey in our own offices, we found that at any given time one third of desks were unoccupied between people working remotely, visiting client sites, vacations, etc.
Results from a case
study (see chart below) shows that this phenomenon
extends beyond office spaces. In this case, it was shown that real
occupancy levels in a typical university building rarely topped 50% of
capacity. In most cases, occupancy was much less than this. To
underscore the synergies with reducing energy consumption, this same
data was also used to provide dynamic control to the HVAC system,
significantly reducing energy consumption with minimal investment in
In a university setting you can imagine how this data might be used to better allocate spaces, potentially allowing many more students to use the same space, maybe even avoiding the construction of entire buildings. This same approach applied in an office setting could allow the same space to house many more employees, for example by using hot desks, making each square foot significantly more valuable. Improving this by 10%, as we assumed as part of our theoretical business case, seems very achievable. There is also a natural overlap here with other technologies like individualized comfort and lighting controls, which have been shown to improve occupant satisfaction and productivity...
300 - Productivity
There is a growing body of research demonstrating that the building
environment can have significant and measureable effects on various
aspects of employee performance which ultimately impact on productivity
including cognitive performance, absenteeism, turnover, and
satisfaction. Significant impacts on productivity have been found to be
linked to ventilation rates, space temperature, personalized controls,
and lighting quality.
The size of the productivity gains found in these studies varies
considerably, but individual factors seem to be responsible for gains
anywhere from 2% to 8%. Taken together, an overall productivity
increase of 5%, which we used in our imaginary business case, seems
pretty achievable. Now, it’s easy to point at a study and tell someone
that they should spend millions of dollars on facility upgrades and
expect to see huge productivity gains, it’s quite another to have them
believe that to the point they’re willing to sign the check. In short,
there is a credibility gap with owners when it comes to the idea of
buildings and productivity that our industry needs to work on closing.
As an engineer, I can convince someone to trust me enough to spend
money to reduce energy consumption by 20% or even 50%. There are a lot
of factors behind this, but the most important is that there is 50 plus
years of successful case studies. It’s easy to prove that energy
conservation measures work. There is no track record like this with
regards to demonstrating measurable productivity gains from
improvements to the work environment. To put this in terms of the
classic adoption curve (see below), with energy conservation we’re at
the late majority or laggard stage, with productivity enhancement we’re
still at the innovator stage.
So how do we move things along the curve? Finding the innovators and delivering projects for them with successful outcomes would be a great start. A body of case studies where measureable gains in productivity can be demonstrated would go a long way to convincing others that this is a worthy investment. These sorts of convincing case studies are still elusive as far as I’m aware.
There are other challenges to be sure. Many organizations wouldn’t even necessarily know how to measure their productivity, let alone be able to tell if it has improved. What started as a facility upgrade project now pulls us into the world of organizational metrics. To be successful, a project like this will likely require a multidisciplinary team potentially including experts in lighting, HVAC, controls, occupant engagement, social marketing, and organizational development. Other stakeholders might include the occupants, operations and maintenance staff, product vendors, utilities, the c suite, and, of course, the occupants themselves. Feeling daunted yet?
The scenario I’ve laid out is also vulnerable to split incentives,
something that continues to plague the energy conservation world. In
many cases where the facility isn’t owner occupied, benefits in energy
conservation, space utilization, and productivity would be realized by
different parties. Is a landlord going to be willing to spend millions
of dollars improving their tenant’s productivity? Tools like green
leases could be one way to help overcome this problem.
In terms of identifying the best candidates for early adoption, finding organizations that already have the systems in place to measure productivity and where there is a natural alignment of the benefits would be ideal. Universities and corporate real estate might be strong contenders as they could also allow for a direct comparison in performance to other facilities that haven’t undergone the same kind of transformation.
If we go back to our typical 50,000 sq ft office building and our $3-$5 million budget, what kind of transformation could we imagine achieving? Our hypothetical project would result in improved thermal comfort and all new lighting systems, both with fully integrated personalized controls. We would have a building that understands where occupants are and uses this information both to operate and utilize space more efficiently. Envelope and window upgrades could improve insulation, cut down on solar gain, and improve natural lighting. HVAC system upgrades could enhance ventilation rates while correcting design flaws, updating older inefficient equipment and adding energy recovery capability. Finally, onsite renewable energy generation via solar PV could offset a significant portion of the remaining load. Through this investment, evidence shows it should be possible to hit our targets for cutting energy use by 50%, improving space utilization by 10%, and increasing occupant productivity by 5%. The economic value of these improvements would be on the order of $1 million per year.
No doubt that getting to an outcome like this is fraught with
difficulties and uncertainties. But when I start to get down about the
magnitude of some of the challenges, I keep coming back to the enormous
benefits in terms of environmental impact, health, happiness and
productivity that can be achieved. This is worth figuring out how to
do. Achieving this vision and reaping the rewards requires no leaps of
technology, just leaps of imagination and a bit of elbow grease in
order to bring together the necessary pieces to surmount the barriers
of our human systems.
As part of a continuing education for our staff I provided this informal presentation:
The Economic Case for Net Zero - Brad White
About the Author
Brad White, P.Eng is a principal at SES Consulting Inc. SES, a Certified B Corporation, is a Vancouver based firm that helps building owners reduce energy use and GHG emissions through their expertise in mechanical systems, building automation, and occupant engagement.
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