An investigation into the profitability of energy management in office buildings

This thesis examines the costs and benefits of energy management in office buildings and investigates the relationships between operating costs, space lease contracts, and building value. Energy Management by building owners and managers begins with monitoring and analysing building energy use and continues by reducing energy consumption through operating procedure changes, equipment replacement and control, personnel training, and continued monitoring. The cost to complete energy management projects in 12 office buildings is analysed. The average, before tax, internal rate of return for the 12 energy management programs was 22.1%, on total expenditures of roughly $1,200,000. Nine of the office buildings are publicly owned and occupied by the provincial government of B.C. The return on the investments in these buildings directly benefits the citizens of B.C. However, in the three privately owned and tenant occupied buildings, the owners have a less direct method of receiving the benefits due to net lease contracts with tenants, under which the tenants pay the energy costs and would normally receive the energy cost savings. If only the energy cost savings in vacant areas acrue to the owner, the after tax returns to the owner from the investments in energy management for the three privately owned buildings are all negative. However, because building value is determined by the net income of a property, and net income is dependent on revenues and operating costs, a statistical analysis of revenues and costs was completed on a 140 building sample of office buildings in the Vancouver, B.C. metropolitan area. The results of that analysis provided support for the hypothesis that energy cost reductions could result in increased lease revenues at the time of lease expiries because tenants are concerned primarily about the total space cost, not the lease payment to the owner. In that case, the returns to the building owners were significantly improved, were all positive, and were as great as 80%.Business, Sauder School ofReal Estate DivisionGraduat