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Article from the July 2014 edition of the CIBSE Journal written by Andy Pearson.
An innovative green lease helped the landlord and tenant to significantly improve the energy performance of a 1980s office block.
Hollywood House is unique - not that you'd know it from its external appearance. The five-storey, brick clad, multi-tenanted office, in Woking's town centre, resembles hundreds of other 1980s, spec-built offices. What makes this building different, however, is that it is one of the first commercial offices in the UK to be let using a Better Buildings Partnership green lease.
The green lease provided a framework for the landlord, M&G Real Estate, and tenant, construction and infrastructure firm Skanska to work together on long-term energy-performance targets for the 5,300m2 building. Its subsequent £3.2m sustainable refurbishment delivered a 55% reduction in carbon emissions, a 45% drop in energy use, and a 55% saving in water use, all of which resulted in the building's Operational Rating rising from G177 to C54.
A nondescript, energy-inefficient office building had been transformed into an exemplar of sustainability. Certainly, that was the opinion of the judges of the 2014 CIBSE Building Performance Awards, who handed the scheme the Refurbishment Project Award (value up to £5m). They said: "Hollywood House provides proof that it can pay for a landlord to invest in green technologies by using the Better Buildings Partnerships green lease format." The scheme is a model for the way in which similar energy-inefficient commercial buildings could be transformed into sustainable workplaces of the future.
The idea of trialling a green lease on the project came from the building's tenant, Skanska, which leased one floor of Hollywood House in 2010. When the tenants occupying the other four floors moved out, Skanska seized the opportunity to acquire a second floor, and to negotiate a new lease.
M&G Real Estate had planned to take advantage of the lull between tenants to refurbish the building. Skanska, meanwhile, had recently set up an Energy Performance Contracting arm, and wanted to use the opportunity to enhance the refurbishment, to make the 80s office as energy efficient as possible. However, it was difficult to justify investment in a building where any improvements to Hollywood House would accrue to the landlord.
M&G Real Estate managed Hollywood House on behalf of Scottish Amicable Life Assurance Society. Although the landlord has a policy of refurbishing its buildings to BREEAM Very Good, to maintain the value of its investments, it was difficult to justify additional investment in green measures to improve the building's energy performance when returns from the energy savings would accrue to Skanska.
To resolve this dilemma, the team decided to explore the option of a green lease. "The idea of using a green lease came from discussions with Skanska about an enhanced green refurbishment because it enabled us to agree where costs and paybacks would lie for the different elements of the project," says Mitch Layng IENG FCIBSE, M&G Real Estate associate director: portfolio energy management.
A green lease is a standard lease between a landlord and a tenant of a commercial building, with additional clauses that impose obligations on both parties for the management and improvement of the environmental performance of a building.
Appended to the green lease for this project was a memorandum of understanding. This provided the tenant and landlord with a written agreement setting out the green works, who would pay for what, and how payback would be structured. The document is not legally binding. "The memorandum of understanding defines how the landlord and tenant will work together to create a management plan for the building," explains David Mason, Skanska's senior sustainability manager.
A detailed life-cycle costing model was used to assess which additional green measures could be included in Hollywood House, on the basis that the increased capital spend could be justified over a maximum 10-year payback period. The floors are let to Skanska on a 10- year pre-let. "These additional green credentials enabled M&G Real Estate to secure building value through retaining Skanska as a tenant with a strong covenant," says Layng. The contract for the refurbishment works was negotiated with Skanska's M&E contracting arm, Skanska Rashleigh Weatherfoil.
The most unusual technology incorporate into the retrofit is a connection to Woking's district energy network. "One of the things we wanted to familiarise ourselves with was the issue of retrofitting to a district energy system for both heat and power," says Mason.
It was not an easy task. The team was fortunate in that the district heating's energy centre was separated from the building by a multi-storey car park, which meant the heating mains could be connected without having to dig up public roads. However, the heating flow and return temperatures were lower than those from the building's boilers, which meant all radiators on the building's perimeter heating system had to be replaced with larger models, to ensure sufficient heat output. "Taking district energy into an existing building is not that easy," says Layng.
The lower water temperatures meant that the coil on the AHU also had to be enlarged to ensure sufficient heat is supplied to the building's retained VAV system. Hollywood House could also have connected to Woking's district cooling system; however, as the building's chiller had been replaced a year earlier, along with the main air handling unit (AHU), it was decided to retain the system. The AHU is also used for night-purge of the building's floors in the summer. "We did look at replacing the existing VAV system with VRF or a fan coil system, but, considering we had just replaced the air handling unit and the chiller, and we'd also have to strip out all the VAV boxes on the office floors, the decision was made to retain the system, but to add better controls," says Layng.
"Connecting to district heating is a big thing for a landlord, because it means that they are effectively tied to one supplier," says Mason. It was agreed that this was not an issue in Woking because the supplier is local authority controlled, and is regulated in the same way as other energy providers.
In addition to heat, Hollywood House takes all 400kV of electricity available from the energy centre's CHP engine. "This was another major change for the landlord, because you are effectively asking them to move off-grid," Mason explains.
When the deal was signed, it was thought that the 400kV supply would be sufficient to serve all five floors of the building. This assumption proved to be optimistic when M&G Real Estate secured a new tenant with a very high IT power demand for the refurbished building. As a result, it was necessary to reconnect the building to the grid to secure the additional 100kV of electrical supply needed.
The off-grid electricity has 32% less carbon than grid electricity, and also costs less. "The district energy is well ahead of its payback prediction, partly as a result of the competitive deal the landlord negotiated for power with the supplier," explains Mason. By contrast, he says, the district heat is slightly more expensive. Its increased cost, however, is partly offset because the landlord only pays for the heat used, and boiler inefficiency in producing the heat can be discounted.
Aside from the carbon savings, a major benefit of moving to district heating was that the building's old, inefficient gas boilers could be removed to create space for the landlord's new 10,000-litre rainwater-harvesting tank. Water from the system is used for toilet flushing throughout the building, including floors occupied by tenants other than Skanska. If there is insufficient rain, the water level in the tank is kept at a minimum level using treated mains water.
The rainwater harvesting system was a Skanska request. "Based on current pricing, you wouldn't retrofit a rainwater harvesting system in this building on the basis of payback, but because water is probably under-priced at the moment, it's likely to be a safe bet," Mason says. Its installation was justified because Skanska's vision for the future involves using potable water only for drinking. "It ticks one of our organisation's future-proof boxes," says Mason.
The domestic hot water system is, however, currently connected to the potable mains. Water is heated using a mixture of solar energy and existing gas-fired boilers. A new 12m2, roof-mounted solar array pre-heats the water. "Getting the district heating to heat the domestic hot water was too much of a challenge," says Layng. (See box on the installation of solar and photovoltaics.)
Electrical demand is kept to a minimum through the use of a low-energy lighting system. "A big benefit to us of working with Skanska was that the Cat A installation was agreed up front, so there was no need to strip it out," Layng explains. At the time of the refurbishment, LED technology was still too expensive for the main floors, so the offices are illuminated using efficient T5 fluorescent lighting, with LEDs for feature lighting. The lamp technology solution has an impressively low power consumption of 7.8W/m2. A DALI lighting control dims the lamps based on daylight levels and zonal movement sensors. If we were to refurbish the floors now, we'd go LED," says Mason.
Other technology trialled by Skanska on the refurbishment includes phase change materials (PCMs) embedded in the ceiling tiles of two identical meeting rooms - one fully serviced, the other naturally ventilated. The PCMs were installed to help keep the spaces cool, although, because of overlaying technologies, Skanska is unable to quantify precisely what savings have resulted from the installation. "It would have been good to have fitted out a whole floor with PCMs, which would have enabled us to compare its performance to the floor without PCMs, but, at the time, this was not a viable option," says Mason.
The refurbishment was completed by the end of 2011. The handover process was helped by Skanska being both tenant and contractor; it was also aided by the facilities manager's involvement with the project in the run-up to handover.
Metering is important to the building's performance. All incoming supplies are metered, with smart meters on each floor so that tenants are billed individually.
"Previously, all tenants would have paid a percentage of the building's total electricity consumption, so there would have been no benefit to being an active tenant, and switching off equipment when not in use," Mason says.
To ensure electrical equipment is switched off, Skanska has installed a large green button on the wall, by the exit from each floor, which has to be hit after a set time if staff want to continue working.
"Provision of information for the building log book and the metering strategy enabled the log book to be used to optimise the building's performance," says Layng. Under the terms of the green lease, M&G Real Estate exchange data on the building's operation with Skanska. "We set up the Green Building Group with Skanska and the building manager, which is a forum that meets regularly to discuss sustainability issues, to look at how systems are actually performing compared to the design calculations, and to put forward initiatives for further improvements," he explains.
The building has since been sold by M&G Real Estate. According to Layng, the cost of the additional green measures under the green lease were lower than the subsequent increase in the value of the property. "This refurbishment has shown how our responsible property investment policy can help save money on operating costs, attract tenants, and boost capital values, leading to better returns for our investors," he says.
The building's sustainability features have improved its financial performance, as well as its environmental credentials, added Layng. "As the occupiers did not exercise their break clause, void costs and refurbishment costs were avoided and, when the building was sold, the additional features were estimated to have increased the value enough to cover the cost of most of the green enhancements."
For Skanska, the scheme brought the kudos of the UK's first LEED Platinum award for commercial interiors. "This project shows what can be achieved by a tenant flexing its muscles, but also how a landlord can benefit from engaging," says Mason. CJ
Solar and photovoltaic installation
Mason says lessons were learned from the solar installation after the array was sized to meet the hot water demand for the fully occupied building. However, because the building is not always fully occupied, and because the sun cannot be turned on and off , the water was getting too hot, so Skanska installed a much larger buffer tank. "We learnt a lot about optimising the solar water system from this installation," Mason says.
The challenge of getting the solar hot water to work is a good example of how the green lease has changed the way tenant and landlord work together. "Other tenants might have realised there was a problem, but, rather than address it, they would have turned off the system and run the hot water from gas alone," says Layng. "But because Skanska is involved in the on-going operation of the building, they want to make it work properly."
The scheme also benefits from 140 m2 of rooftop photovoltaics, producing up to 15,676kWh of electricity a year, with surplus sold to Woking. Because there was insufficient room on the roof for the installation, contractor Skanska Rashleigh Weatherfoil installed the panels on a purpose-built steel frame to sit over the roof-mounted AHUs.
Payback on the PV system is nine years. Under the terms of the green lease, Skanska gets the electrical power and the Feed-In Tariff payments of around £7,000 pa for the first 10 years, after which time the installation reverts to the landlord.
- The green retrofit cost £3.2m, with green interventions comprising 10% of this
- Payback for the green interventions is nine years, which falls within Skanska's 10-year lease, based on energy price inflation of 4.5%
- Predicted energy reductions of 45% have been exceeded, resulting in a reduction in operating costs from £27/m2 to £14/m2
- The power shut-off switch has reduced night-time energy consumption by 7%, saving £2,500 in electricity costs.