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Office Partnerships Tackling Hybrid Work, Net Zero Goals

Jan 17, 2024
Accommodating the peaks and valleys of office attendance in hybrid workplaces is an ongoing challenge for business leaders. Another is meeting environmental, social and governance (ESG) demands. Increasingly, landlords and tenants are working to address the two together.

From our Sustainability Thought Leader Partner, JLL.

Office landlords and tenants are teaming up to take on complex issues facing businesses

Accommodating the peaks and valleys of office attendance in hybrid workplaces is an ongoing challenge for business leaders. Another is meeting environmental, social and governance (ESG) demands.

Increasingly, landlords and tenants are working to address the two together.

Tenants and landlords are now exploring more efficient ways to manage new office usage patterns, including flexible lease terms, in a more collaborative approach to two of the most pressing issues for many businesses.

“Landlords and tenants are asking about ways they can work together,” says Greg Bolino, Global Head of Sustainability Strategy and Assets, for JLL.

“Tenants are saying, ‘We have made a commitment to the environment, what does this mean when I now sign a lease?’ A net zero commitment means a tenant must occupy a low or zero carbon building to meet their target. We see shortages of these emerging in multiple market around the world.”

Currently, tenants expect buildings to be fully operational from 7am to 7pm, every day of the week, with expectations of fully-functioning utilities like lighting and air-conditioning. But this may be outdated when looking at the changing nature of business hours and hybrid work.

The reality is, at many companies, employees are coming to the office only three or two days in the middle of the week. How can corporate occupiers work with their landlords to reduce energy consumption on the remaining days? And what about days when some floors are empty? Should the power be turned off completely?

A partnership approach

There’s a long list of questions to be answered in the race to net zero, and strategic partnerships between tenants and landlords are becoming increasingly necessary to combat rising energy costs and deliver on sustainability initiatives.

“Important conversations need to be had about issues such as building operation hours and a building’s overall carbon output,” says Josephine Tucker, Managing Director, Clean Energy and Infrastructure Advisory, JLL. “Investors and occupiers both have sustainability goals they’re trying to meet. The goal is to find solutions that make sense for both sides of the equation.”

Another potential pitfall standing in the way of progress on net zero goals? Longer lease negotiations. Increased governance requirements could mean that tenants need to cover a new range of issues in leases, potentially increasing the number of issues to be resolved. Tucker suggests starting negotiations as early as possible. In many cases, leases can get finalized in a matter of weeks if all the conversations have already been had and the clauses have been negotiated and written.

Greater flexibility required

Contracts that put a lot of obligations on a landlord and tenant, and that technically can’t be changed, could prove especially problematic. One solution is to establish a management committee between the two parties to be able change the operating parameters of buildings with greater flexibility.

“A tenant may want air conditioning on in the building for a longer period of time, but that's going to wreak havoc with a landlord’s environmental commitments to reduce energy,” says Bolino. “In summer, everyone is coming in at 7am and leaving at 5pm. We can pull the air-conditioning back to 6pm instead of 7pm. In winter we’ll shut floors down. The lease should have a mechanism that allows that to happen between landlord and tenant.”

As the relationship between tenants and landlords continues to evolve in the face of hybrid working and sustainability challenges, better collaboration and communication will be critical to effectively driving progress towards shared goals.

“Unless the landlord and tenant can be flexible and modify leases when things change, both sides are always going to be playing catch-up,” adds Bolino. “The bottom line is, there needs to be better incentives and trust that continues throughout the duration of the lease."

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