n the past few years, as the developed world went

into a financial downward spiral, India’s economic

performance was not unaffected. Though not as bad

as the rest, the total goods and services produced (the

GDP) of India declined by US$26.4 Billion. On the other

hand, in the US, in spite of numerous forecasts by academics,

analysts and fund managers about an impending real estate

bubble, lax regulations, and a financial meltdown; many real

estate players hardly took any precautionary measures, which

eventually led to several real estate bankruptcies and stalled

development projects. However, during this storm of sorts,

many smart real estate developers and builders weathered

and prospered as well. One of the key areas of strategic

interventions revolved around operational issues, an instance

of which we are discussing in greater detail in this article.

Since, India is well connected with global capital markets,

and commercial real estate growth closely complements

India’s trade ties with the world, it becomes very important

for an Indian real estate player to make sense of the global

developments and take back the good ‘lessons learnt’. Another

reason why Indian real estate must follow these developments is

the fact that we lack indigenous real estate knowledge system

for the kind of properties that we have got ourselves into. So

I

Steps to Ensuring Energy Efficiency in Existing

Buildings

EdITOR’S BOXAs the markets mature specially with the introduction

of REIT, the Developers will have to adopt to

“Develop-Lease-Operate” model, in which case

keeping the operating cost low assumes paramount

importance which can be achieved through Energy

Conservation Methods (ECM) say the Authors.

Are You Spending Too Much?

far, real estate in India has been primarily a ‘develop and sell’

story, but as the market matures, more and more developers

will have to explore the options of developing, leasing and

operating the building they have built, especially when it

does not remain a seller’s market. Moreover, with greater

push for implementing the REIT structure, develop-lease model

does not seem to be a remote reality. In such circumstances,

developers will have to remain competitive on rents, manage

high borrowing costs, and yet ensure profitability.

One of the methods widely employed in the corporate sector

to increase the value of the existing assets is to maximize the

revenue and cut overheads to strengthen the bottom line. In

the real estate sector, this method will boil down to trimming

the operating expenses of existing assets, which can lead to

more competitive rents for tenants, thereby making the asset

more marketable. Although dependent on the lease structure,

several times the operating expenses are paid for by the

tenants. However, any provisions that lower the operating

costs will eventually reduce the overall expenses on the tenant’s

end thereby boosting the demand among prospective tenants.

Moreover, due to this advantage, not only the marketing

appeal of the property will shoot up, the property may also

-Abhay Ambati -Prashant Das

22 C r E d a I r E a l E s t a t E r E v I E w - a p r I l – J U n E - 2 0 1 1

enjoy a hefty premium on the rental rates.

Among many, we discuss what, are two popular methods to

reducing operating expenses:

1. Build and operate an energy efficient building, and

2. Install building energy performance measures, analyze

performance reports, and implement appropriate Energy

Conservation Measures (ECM)

The second method is used to constantly monitor energy

expenditure in buildings. Conducting energy audits, in

addition, helps strengthen the developer’s reliability in the

market apart from keeping a check on energy expenditure.

Alternatively, a competent property management team can

analyze the performance reports and fix the problems..If

possible, funds are allocated to undertake small but significant

capital improvement works such as chiller replacement,

motor replacement, light fixture replacement, passive cooling

features, retro-commissioning etc.

The first method, on the other hand, is possible only in limited

circumstances primarily because it involves a major step of

deciding on an energy efficient property. Also, the process is

time consuming, capital intensive, and subject to market-cycle

risk. Comparatively, the latter option is lower on costs, faster

to implement, and gives the developer a tool to constantly

monitor building operations instead of employing a one-time

fix. The flip-side is that a retro-active approach towards energy

efficiency may not be as effective as building a new energy

efficient building ground up.

Abhishek Kiran Gupta, in his recent article for JLL Meghraj

brings to light the growing scarcity of Grade A office space

in traditional Indian Central Business Districts (CBD). In such

areas, most of the property inventory is aging, is poor on

maintenance, and high on operating expenses. Though the

improvements have depreciated, the locations remain pricier

than ever. Since, the CBDs are populated to the neck, new

construction is not a viable option. Thus, the article suggests,

improving even 30% of the existing Grade B stock can

generate additional revenue of INR 2.9 billion (that alone

covers more than 10% of the recent GDP decline!).

The World Bank graphs further go on to show that the energy

consumption is gradually outpacing energy production, which

leads to energy deficit. Ministry of Power estimates a peak

power deficit of 16.6% in the year 2007-08. Monitoring and

controlling of building energy performance would help reduce

peak demand loads of a building.

23 C r E d a I r E a l E s t a t E r E v I E w - a p r I l – J U n E - 2 0 1 1

In a separate study by Bureau of Energy Efficiency (BEE), it

was concurred that the Energy Utilization Index (EUI) for a

commercial building in India ranges between 200 to 400

kWh/SQM/Yr, whereas a similar building in North America

would have an EUI of less than 150 kWh/SQM/Yr. It is beyond

doubt that there is a vast potential to reduce energy footprints

of existing building. In a world with rising cost of energy, fluid

economic climate, and aging real estate stock, transforming

existing buildings into energy efficient ones would be a wise

decision to make.

One of the first steps is to understand the energy flows in and

out of the building by collecting and compiling utility histories,

which gives information on the amount of gas, electricity and

water consumed by the building as well as the price paid for

the same. Companies such as US-based Noveda Technologies

provide real time building energy performance measurements,

which opens up a whole new way of conserving energy.

These measurements provide the property management with

a real time knowledge of possible issues which needs to be

plugged. For instance, in a multi-tenant office building, office

hours of different tenants may differ. However, AHUs may be

operational even at times when occupancy is zero. A real

time information can help optimize the operations of energy

consuming equipment, thereby saving energy. The second step

is to estimate the heating and cooling load using available

building information, which provides a reference for analysis.

Site visit and interviews should follow. It gives a realistic idea of

building operations and inventory of equipments being used.

Thereafter, the most important exercise is conducted which is

the survey of energy-consuming elements of the building such

as, air conditioning, lighting, building envelope, motors, hot

water, heating etc.

Once complete information and data is collected, analysis

and calculations are performed to find efficiencies, alternates,

payback periods etc. Conclusions are reached with respect

to which energy conservation measures (ECM) are to be

employed. Budget is allocated for capital improvements, if

any. Completion of the above mentioned processes marks the

completion of an effective audit, which provides the developer

a clear picture of the costs involved to improve efficiencies,

the timelines to implement the ECMs, payback period of the

money incurred, and projected rents which the developer can

demand in the near future.

A global interconnected world brings in a whole new set of

problems and opportunities. A savvy real estate player is

the one who can identify and implement the best techniques

available at our disposal to improve the value of their assets

with the least outlay of money, time and effort.

References:

http://www.joneslanglasalleblog.com/realestatecompass/

commercial-property/2011/03/real-estate-report-retrofitting-

indias-central-business-districts/

http://eco3.org

http://www.powermin.nic.in/whats_new/pdf/BEE_Energy_

Efficiency_in_Buildings_in_India.pdf

http://www.powermin.nic.in/whats_new/pdf/BEE_Energy_

Efficiency_in_Buildings_in_India.pdf

The Authors Abhay and Prashant head the Communications

and R&D wings respectively at realism.IN™.

About realism.IN

realism.IN™ is a partnership of entrepreneurs from India and

the United States striving to provide high quality knowledge

backbone to the real estate business in India. The firm

provides eLearning and research services and products aimed

exclusively at Indian real estate. To explore more about realism.

IN, please visit http://www.realism.in

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