Tenants in Recovering Office and Industrial Markets Face Higher Costs Under

Tenants in Recovering Office and Industrial Markets Face Higher Costs Under

Published on January 17, 2014


Cassidy Turley, a leading commercial real estate services provider in the U.S., reports that the still recovering office, industrial and retail markets will face more pressure in July 2014 when new California energy compliance standards go into effect, potentially increasing tenant improvement and new construction costs by as much as 25%.  

“The implementation of California’s new 2013 Title 24, which aims to promote Zero Net Energy (ZNE) in new residential and commercial buildings as well as in commercial buildings that are being altered, carries significant cost impact for landlords, which in turn may translate into higher TI costs and rental rates for tenants,” said Duncan Dodd, Senior Vice President with the San Diego office of Cassidy Turley.

The 2013 Title 24 Standards were to go into effect January 1, 2014, but state delays in software development and training for the new code prompted the California Energy Commission to push the effective date to July 1, 2014. The standards were last updated in 2008.

“The new standards are designed to increase the number of buildings where annual energy consumption is equivalent to annual on-site energy generation,” said Mr. Dodd.  “The most significant impacts will be in the areas of lighting, electrical, windows and HVAC systems.” 

Lighting fixtures must use fewer watts and meet higher efficiency standards, which likely means using more expensive LED light fixtures. All new lighting must meet lighting power density (LPD) requirements as well as sensor-based lighting control requirements (dimming). 

Existing buildings will be particularly affected since any retrofit or TI project that alters more than 10% of lighting requires that lighting throughout the entire space be updated. The 10% requirement is a significant increase over the prior 2008 requirement of 50%.

“Under the 10% requirement, if there are 10 lighting fixtures in an office and one fixture needs to be changed, all lighting fixtures must be updated to meet the new code’s requirements,” Mr. Dodd said.

Other Title 24 requirements include:

  • All commercial buildings over 10,000 square feet are required to have lighting systems with automated demand response capabilities.
  • HVAC systems will require more complex control systems and use-efficiency.
  • A mandatory requirement that all new non-residential buildings of three stories or less be solar ready.

“While all tenant improvement projects are unique, the new efficiency standards can increase overall tenant improvement costs by as much as 25%,” Mr. Dodd noted. “Facility improvement and lighting companies anticipate mechanical costs will see increases of up to 17.5%, with electrical lighting installation and materials costs increasing by up to 35%.  Over the long-term, electricity costs related to lighting may decrease approximately 8%, but the up-front costs will have the biggest impact on tenants.”

Tenant improvement projects can take two to four weeks longer under Title 24, which tenants and landlords will need to take into account during the lease and move processes. 

“Tenants in general will need to be more judicious in choosing space, factoring in both the improvement timeframe and related costs before making a decision,” Mr. Dodd stated. “Meeting Title 24’s bare minimum standards is equivalent to achieving LEED Gold certification. However, if the tenant wants to be awarded Gold certification, they will need to apply and pay for it.

About Cassidy Turley

Cassidy Turley is a leading commercial real estate services provider with more than 3,800 professionals in more than 60 offices nationwide. With headquarters in Washington, DC, the company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $22 billion in 2012, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 23,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside North America through a partnership with GVA, giving clients access to commercial real estate professionals in 65 international markets. Please visit www.cassidyturley.com for more information about Cassidy Turley.

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Sandra Grove

858-565-1905

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