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A Weak Economy Has Not Derailed Retail Developers’ Desires to Go Green

A Weak Economy Has Not Derailed Retail Developers’ Desires to Go Green

With developers reining in new construction in these lean economic times, it’s not always easy to spot signs of retail’s evolution into a greener industry.

But developers and architects say that even as the pace of build outs has slowed, they’re not wavering in their resolve to pursue sustainable, environmentally friendly projects. Furthermore, when the economy bounces back, they expect that retail will be greener than ever.

Mike Sullivan, a principal in commercial architecture at Chicago’s Cannon Design, acknowledges that the recession’s effect on green building has been “almost indiscernible” due to the overall climate. “Given the health of the patient, it’s hard to tell” whether green or traditional development has been more challenged, he says.

But interest in sustainable building and design has remained strong, with the U.S. Green Building Council’s LEED certification standards in particular providing a baseline for discussion of green practices. Developers of office buildings led the way earlier on, Sullivan says, by showing the retail sector the payoffs of LEED projects—greater desirability to tenants and savings in energy bills among them.

“It’s fairly clear, particularly among the big national developers, that a LEED-certified portfolio adds value to properties over time,” Sullivan says. “I think we’ve gotten over that discussion.”

“I think now green in retail is just a matter of course—it’s just the business,” says David Avila, principal of Avila Design in Berkeley, Calif. “It’s not something that really has to be sold anymore…. There’s willingness and desire to do it just because it’s the right thing to do.”

Developers acknowledge that, depending on location and other factors, greening a project can increase its price tag by about 3 percent. Yet that premium rarely scares off larger retailers and developers, even amid the recession.

“We believe that the value proposition outweighs any cost,” says Mark Peternell, vice president of sustainability for Jacksonville, Fla.-based Regency Centers. In 2008, the developer committed to making 20 percent of its projects LEED-certified and planned to increase the proportion by 20 percent each year. Though its overall expansion has slowed, Regency is still on track to hit the LEED benchmarks, Peternell says.

Peternell started in his newly created position in 2008, just when the recession was about to hit and when many other developers were rolling out their own sustainability programs. Though planning of new projects slowed dramatically at Regency and elsewhere, the hiatus did have an upside—it gave developers time to focus more attention on establishing green initiatives.

“Retailers are having an opportunity to look at internal operations and really pursue initiatives that they couldn’t have done when they were so bloody busy,” says David Avila.

These shifting priorities are spreading throughout the retail field. Developers increasingly want to display their concern for a healthy environment, says Michelle Ray, assistant principal with Omniplan. The Dallas-based architectural firm has a particular interest in green projects—it has signed on to an American Institute of Architects’ initiative to achieve net zero carbon emissions in new buildings and renovations by 2030.

As recently as two years ago, Omniplan often had to persuade clients of the value of green building and assuage concerns about increased costs. Today, discussions with developers start with an assumption that green elements will be included. “It’s just becoming so much more main stream,” Ray says. In addition, contractors hired by architects now more readily comply with green measures and are less likely to charge extra for the services.

“Retail developers are always trying to make themselves look better in the public eye,” Ray says. “The public has become a lot more conscious of green building design and green issues, and developers want to pick up on that.” The Gulf oil leak will only continue to raise the public’s concern about the environment, she adds.

Data indicating exactly how much green construction has grown is difficult to come by. However, the U.S. Green Building Council, which oversees the LEED standards for green building, reports that there are now 2,600 registered projects in the retail sector. Half of all LEED-certified commercial projects were approved last year—a significant number, considering that LEED certifications began in 2000.

Marketers, retailers behind push

Developers and architects cite several drivers behind the push to go green. For one, some tenants look for sites that reflect green awareness, particularly those such as REI, Whole Foods and L.L. Bean, who wear their earth-friendly philosophies on their sleeves. Retailers who want LEED-certified spaces look for malls and centers that are also LEED-certified, as USBGC now keeps these certifications separate.

“That really is the way that full compliance [with green-friendly practices] or close to full compliance will occur,” says Sullivan of Cannon Design. “It will come more from demand on the tenants’ side than on the landlords’ side. For a certain number of tenants, it’s an alignment of their brand with the philosophy of sustainability in general.”

In addition, some municipalities favor developers who will comply with LEED standards. And retailers and developers alike acknowledge a shared desire to appeal to a consumer base increasingly aware of environmental issues. When Omniplan proposed a LEED Silver mixed-use project in Phoenix to a developer, the most excited staffers in the room worked in marketing, Ray says. “They thought, ‘We can run with this.’” USGBC even encourages this green marketing by offering LEED points to developers who add educational kiosks to their sites, featuring information about the green-friendly attributes at their locations.

Apart from the added appeal to tenants and consumers, greener properties also promise long-term savings due to their more efficient use of water and energy. That appeals in particular to retail developers, who often hold onto properties longer than their counterparts in office real estate.

Fresh & Easy, a grocery chain based in Southern California, incorporates energy-saving measures into its design such as skylights, LED lights and advanced refrigeration systems with sliding doors that conserve energy. Stickers on refrigerators inform customers of the green-friendly units they’re using.

“It’s a great way for us to do what’s right, but also take those savings and pass them on to customers,” says Brendan Wonnacott, communications director for the chain. Its conservation measures go beyond design, as Fresh & Easy also recycles and reuses all packing and shipping materials. A distribution center in Riverside, Calif., is powered by a roof-mounted solar power system. The retailer shares its green values with its parent company, U.K.-based Tesco, which aims to neutralize its carbon footprint by 2050.

LEED adapts to retail

Bigger national retailers were seeking water and power efficiency well before the recent wave of interest in green building, developers say, but not all are pursuing LEED certifications. Peternell of Regency Centers attributes that in part to the slow pace of USGBC’s introduction of a retail LEED standard. Until now, retailers have simply used the LEED new construction or commercial interiors standards, which are more general in scope.

USGBC’s new LEED retail standards have been in the works for six years and are due out later this year. They also apply to new construction and commercial interiors but take into account particular aspects of retail spaces, says Nick Shaffer, USGBC’s manager of commercial real estate. For example, office buildings get LEED points if they include showers for workers to use after walking or biking to work. But that’s not practical for retail outlets, Shaffer says.

On the other hand, the retail standards are more specific about ways that retailers in particular can save water or energy and include specifications for kitchen equipment, which for restaurants can account for as much as 60 percent of the water and energy load, Shaffer says.

Even under the new standards, the process of LEED certification probably won’t change much for developers, who have little control over which standards their tenants aspire to meet. The most applicable standard for developers will continue to be the LEED Core and Shell specifications, which companies including Westfield, Macerich and Regency Centers are already using.

By reusing existing buildings, redevelopment projects can also qualify for LEED’s Existing Buildings standard. The standard allows developers to focus more on the aspects of the project within their control, regardless of what tenants have introduced, says Mike Sullivan of Cannon Design. Developers can then create a plan that tenants can conform to over time with successive renovations. When compared to the other LEED standards for retail, LEED-EB “conforms with reality a little more,” Sullivan says.

However, a developer overseeing a redevelopment also faces limitations on green enhancements. Redevelopment cannot change a building’s position on a site, for example, nor can it add insulation to the walls.

Green advocates stress that not all environmentally friendly sites need to pursue LEED standards. “LEED is a standard and a good one,” says Regency’s Peternell. “It has a lot of benefits, but it’s a means to an end, not the end itself.”

The new USGBC standards indicate a growing sophistication in green retail. Meanwhile, industry groups are lobbying the federal government for added incentives to adopt environmentally friendly practices, as REITs are currently barred from taking advantage of some due to their status.

Encouraged by this momentum, the greening of retail is likely to proceed, even amid the challenges of the recession. “There may be a period of short-term thinking, but I believe that over time it will evolve back to the appropriate priorities,” says Sullivan. “The short-term thinking is, in fact, short-term—I don’t think it portends a sea change in the overall philosophy.”

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