Whether you own a commercial office building, run a data center, manage a hospital, or oversee the operations of a school district, you have a budget and you have operating expenses. Chances are you’ve heard the phrase “low hanging fruit” in referring to savings, such as updating to more efficient lighting fixtures, installing low flow toilets and other “swap & save” solutions to lower operating expenses, but what about the added benefits of lowering the cost to run your facility?
That’s where Net Operating Income (NOI) and Asset Valuation come into play. By taking measures to lower the cost of running your facility, you are, in fact, increasing its value.
ENERGY STAR® calculates that a 10% decrease in energy use could lead to a 1.5% increase in NOI — with even more impressive figures as the energy savings grow. In light of the current compression of capitalization (cap) rates (NOI divided by the sales price or value of a property expressed as a percentage), it is possible to turn pennies into millions.
For example, in a 600,000-square foot office building that pays $2 per square foot in energy costs, a 10% reduction in energy consumption can translate into an additional $120,000 of NOI. At a cap rate of 8%, this could mean a potential asset value boost of $1,500,000.
Ironically, that 10% reduction is the minimum energy savings estimate for an energy analytics software solution. For roughly the annual cost of one building engineer, a building using an energy analytics service can leverage their existing staff to take low or no cost action to address high cost operational issues, which will decrease the strain on it’s operating budget and provide a healthy return should the facility be sold.
Office buildings with pass through leases benefit as well, in the form of more competitive leasing rates. Building A leases for $51/ft2 and has $9/ft2 in pass through expenses, Building B leases for $50/ft2 and has $10/ft2 in pass through expenses. The burden on the tenants is equal at a total of $60/ft2, but Building B is taking in $1 less per square foot due to the higher operating expenses, and must lower it’s rates to stay competitive. If Building B decreases the cost to operate his building by 10%, it will be able to charge the same rate as Building A, and increase profits.
By decreasing the cost to operate a facility, it will be more competitive in the marketplace for leasing, lease renewals and potential sale. Ultimately, a reduction in energy use, or the cost to operate your facility, will benefit everyone, from the building owner, to the leasing agent, the facility manager, tenants (or hospital patients, data center clients, school district tax payers, tuition paying students at a university, we can keep going…), and the environment.
The energy analytics experts at Datakwip are ready to show you how easy it can be to achieve greater efficiency in your facility, visit us at www.datakwip.com or call 1-866-278-7915 to get started.