The Greening of Retail

When it comes to green development, Central Florida is becoming a leader.  A number of local counties and municipalities have implemented sustainable policies and ordinances providing incentives for green buildings. The construction of one of the first downtown office buildings seeking LEED certification is progressing. Green systems, processes and technologies that seemed new and unknown just a couple of years ago are becoming familiar.

In the midst of such change, retail is becoming a new front on which the impact of greening is being felt. Both local and national retailers have begun to incorporate green into their new and existing locations. Banks, supermarkets, big box retailers and home improvement stores are all jumping on the bandwagon. While some retailers are seeking LEED certification, others are simply “greening” their facilities without becoming certified. For example, a family-owned and operated organic restaurant downtown has small signs throughout, highlighting the sustainable features of its building and operations, although it is not LEED certified.

Sky-rocketing energy prices have been a recurrent reminder that businesses need to find ways to conserve. Sustainable building practices make a big impact in terms of not only preserving energy but saving money. However, while office buildings have been shifting towards green for a couple of years, the movement in the retail area is relatively recent, and there are several reasons.

First, unlike office buildings which tend to have more standardized needs, retail requirements tend to be more unique. For example, a restaurant needs a major refrigeration system that will run 24 hours a day, seven days a week, and ovens that may run 12 to 15 hours a day. In contrast, very few office buildings will have such demands for energy consumption. It has taken time for retailers to adapt green concepts to their unique needs.  A majority of office building occupants remain the same from day-to-day and may therefore be more familiar with their building’s sustainable features. Retailers, on the other hand, have customers that change on a daily basis and efforts to educate them on the use of green features can be challenging such as teaching diners in a food court how to utilize various recycling bins to separate and dispose of their trash. However, some other green systems are easy to understand and are becoming commonly accepted like lighting and water sensors or water conserving features in restrooms.

As the public becomes more familiar with such devices and embraces their use, retailers have begun to respond. In addition, studies are revealing unique benefits retailers may experience. For example, a recent study examined 73 store locations in California, a number of which received significant daylight through diffused skylights. The results showed that increased daylight had a material positive impact on sales.  Just as an interior with fresh air, natural light and low toxin levels have been found beneficial in the office context through lower absenteeism and higher employee productivity, retailers are finding that shoppers tend to stay longer and buy more with green interior environments.  Retailers are specifically looking for advantages in the sluggish economy.

As with office buildings, landlords and tenants are both wrestling with which party should be responsible for making changes or incorporating sustainability into their locations. Traditionally, landlords have paid for improvements or provided tenant improvement allowances for retail tenants. However, since tenants frequently pay for their own utilities and thus benefit can benefit more from energy efficient systems, landlords are requiring higher rents to offset their initial investments in these improvements.

Market forces are still establishing new norms. Landlords and tenants alike are learning that standard retail leases do not address the issues raised by green development and, until the market more firmly establishes what the new “rules” are, the parties are having to craft custom leases to apply to their specific transaction.

While commercial office leases are still evolving, these have benefited by having faced similar issues over the last several years and the market consensus on terms is more established. Green retailers, on the other hand, are realizing unique challenges in agreements dictating maintenance obligations (such as requiring any maintenance or replacements to maintain the same level of sustainability) and practices (using green cleaning products), shared parking and access routes, facilities management and the higher traffic counts.  Having knowledgeable and experienced professionals to assist and guide the parties through these challenges is important.

As the “greening” of Central Florida continues, the greening of Central Florida retailers will benefit our community as well as the retailers and their landlords.

Michael McNatt is the founder of the McNatt Law Firm, P.A. located in Orlando, Florida. Michael is a U.S. Green Building Council LEED Accredited Professional (LEED AP) and practices in the area of commercial real estate, finance and general business law.