Rachel Aaron investigates how California’s Kilroy Realty Corporation is prioritising sustainability through green certifications and innovative technologies.
Every year, 47% of all energy produced in the US is consumed by the building sector. Of the electricity consumed, approximately three-quarters is used in the operation of buildings, and electricity consumption is only going up. It’s clear that a shift is needed in how modern buildings are constructed and managed. This is a problem that companies like Kilroy Realty Corporation (KRC) are seeking to address through sustainable building practices.
Founded more than 65 years ago, KRC has committed to achieving green building certifications – at a minimum, LEED Gold for all ground-up development and LEED Silver for all major renovations. This is an ambitious commitment for a publicly-traded REIT. Its sustainability programme was formally launched in 2010, but the company had been dabbling in green building before this, including developing the first LEED for Core & Shell certified building in San Diego.
“We like to control all aspects of a building coming together,” says Sara Neff, KRC’s Vice President of Sustainability. “We develop best-in-class buildings for West Coast markets. We’re building higher performing buildings, which is synonymous with sustainability. Our approach to this is very product-based, which is how it should be.” Neff claims that this is a value tenants see, as doing the right thing for the environment is also a smart economic decision.
“We have to differentiate ourselves,” Neff continues. “Current building codes force California development projects to get close to LEED-certified or Silver. For us, being LEED Gold carries some market weight.” In some markets, KRC pushes beyond its Gold standard to achieve further differentiation. For example, Neff is working on a programme to make LEED Platinum KRC’s standard in San Francisco, where LEED Gold is considered the norm.
KRC’s sustainability efforts have been rewarded by the marketplace. Neff says that its LEED Gold and Energy Star buildings have higher occupancy rates. In the case of KRC’s 350 Mission and 333 Brannan Street ground-up projects in San Francisco, the LEED Platinum buildings were fully leased before construction even began.
As some debate the economics of green building and whether costs can ever be fully recuperated on projects that often have substantial upfront capital expenditures, Neff provides a few pointers on how to minimize the risk. “The biggest advice I can give about minimizing costs is to bake in LEED upfront. You have to be clear on your expectations with the design team. It’s a matter of planning early and getting the requirements into the specs early. We don’t believe LEED Gold has to come at a premium.” LEED Platinum does have a premium associated with it, but again, “if you bake it in early, the costs are not prohibitive. Thankfully, the markets will reward you for it, as was the case in our 333 Brannan Project.”
The tenants’ demand has substantially helped to push the market toward adopting a green building standard. Some of KRC’s tenants, like state government departments, have mandates to occupy LEED Certified spaces. For example, the City of San Francisco has adopted LEED Gold as the standard for all public buildings. Neff says that for many technology companies, high performing sustainable design is a prerequisite on the search for office space.
There are some challenges that KRC faces as it continues to push the envelope on commercial green buildings. For one, the nature of construction in high rise buildings makes it much more challenging to pursue more aggressive green building programs such as the Living Building Challenge. “[The Living Building Challenge’s] Net Zero Energy isn’t a reasonable goal for us at this point in our high rise developments,” Neff says. “This is because, for example, we often build on spec, so widening the thermal comfort band is difficult when trying to create a building that will appeal to the broadest range of tenants.”
Tenant engagement is a critical component of successfully operating a high performance space. “We use our leases as the platform for tenant engagement, so the tenant knows that we care and that they’ll be asked to participate in advance of occupying the space.” Neff claims that KRC has great tenants in its buildings, highlighting a LEED Gold development in San Francisco that is currently occupied by several larger tech clients. Neff is proud of the fact that, despite the traditionally large energy usage by tech companies, the building is still achieving a high Energy Star rating.
KRC is closely monitoring energy consumption in its buildings. The company has started requesting and performing real time energy modelling. It is also implementing demand response technologies to automatically reduce energy use at times of peak demand – which Neff says isn’t always popular with tenants. In its quest for leadership in the industry, KRC is piloting several other sustainable features in some of its developments, including a variable refrigerant system, biomimicry materials, and CarbonCure concrete masonry units. Additionally, Neff said that preference will be given to products with the Declare Label on future projects.
So how does all of this work translate to the public markets? KRC publishes an annual sustainability report every year, which is externally verified. “We want our investors to know that we walk the walk, and we want them to trust that the information we’re disclosing is accurate,” says Neff.
As Neff says, “there are lots of gains to be made and lots of work to still be done.”
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