Sustainability in the Retail and Restaurant Industry: An Imperative and an Opportunity
Once motivated purely by altruism, sustainable retail development and building operation are increasingly encouraged by both governments and market conditions, if not explicitly required by law.
Sustainability presents attractive opportunities to the retail and restaurant industry despite its unique challenges, such as significant interior and exterior demands, management of substantial refrigeration loads associated with food sales, and complex leasing arrangements with tenants of all sizes.
- Market Standards. The real estate industry has come to embrace “green building,” and the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) rating system has become the de facto market standard. Many retailers and restaurants have developed shopping centers or stand-alone stores certified under the LEED system. The U.S. Environmental Protection Agency’s Energy Star program also enjoys significant and broadening market acceptance as a measuring stick for the relative energy efficiency within asset classes, including retail facilities.
- Regulatory Standards. Not always in sync with market conditions, the regulatory landscape is changing rapidly regarding all aspects of sustainability. LEED is increasingly required by local ordinance, or to qualify for government requests for proposals, and grant programs often favor or require sustainability. Moreover, many states and municipalities have tightened their energy codes for new construction and major renovations.
- Energy Efficiency. To improve energy efficiency, shopping centers and individual retailers and restaurants may hire specialized consultants to retrofit facilities and/or retrain operations staff. Another common model is to hire an Energy Service Company to guarantee a specified degree of improvement.
- Indoor Environmental Quality. In response to widely available studies of the positive effects of “daylighting” and eliminating indoor air pollutants, retailers may seek to increase sales or employee productivity by improving indoor environmental quality.
- Distributed Generation. Due to regulatory and market changes, owners and managers of large retail facilities can feasibly generate a larger share of their own energy on site from alternative and renewable energy sources.
- Reducing “First Costs.” New government and utility-based incentive programs are being introduced monthly, including tax-exempt bonds, grants, rebates and loan guarantees, Renewable Energy Credits, as well as tax credits and deductions.
- Procurement and Green Leasing. Appropriate design and construction contracts and “green leases” can help to ensure sustainable development and operation and align landlord and tenant interests for optimal facility performance.
Given today’s regulatory landscape and market conditions, sustainability in the retail and restaurant industry presents a number of attractive opportunities, even if such sustainability is not explicitly required by law. Knowing how to identify those opportunities will allow retail developers and owners, as well as tenants, to stay ahead of the curve on both accounts.