New lighting code standards could have unforeseen consequences for both tenants and building owners.
OPERATING COMMERCIAL real estate is such a complex process that it can sometimes be overwhelming. Building owners and operators need to keep track of demand, interest rates, management, attracting and retaining tenants, lease negotiations and so many other things that it is easy for some things to fall through the cracks. Often, those things that are overlooked can result in very expensive consequences.
One such event recently occurred. At the beginning of July 2015, new IECC and ASHRAE 90.1 standards were released, which took effect that same month. These codes deal with energy efficiency standards that are mandatory for residential and commercial building owners to follow. One aspect of the code changes that could have unforeseen consequences for both tenants and owners of commercial space is new mandates associated with lighting fixtures and switches.
Under the new standards, if an improvement to a space requires 10 percent or more of the lighting fixtures to be changed, then all the fixtures within the space will need to be replaced if they don’t meet the new standards. More importantly, three-lamp T8 fixtures are no longer acceptable. Therefore, more energy efficient fixtures are required to meet the new watts-per-square-foot requirements. Some of the options include LED, T5 and potentially T8F25 with Energy Star ballasts fixtures. Multilevel switching and occupancy sensors are required in all areas, except in spaces with only one fixture. These areas must be equipped with occupancy sensors that can be set in vacancy mode. All spaces within 15 feet of windows must be equipped with daylight sensors and dimming or multilevel controls.
Whether tenants are altering their space in the middle of a lease or building out space with a tenant improvement (TI) allowance, tenants need to be aware that the existing light fixtures and switches may need to be replaced. Failure to do so could result in cost overruns or could reduce how far TI dollars go toward covering the cost of construction.
Landlords also need to be aware of these changes, especially if they are building out tenant space on a turnkey basis. Unless they amortize the cost of new fixtures and switches into the rents, they may find themselves having to spend extra money that was not budgeted. Additionally, changes to the base building, common areas, exteriors and parking decks could require similar modifications.
While each case is different, Colliers estimates that the new codes will add $9 to $12 per square foot to the cost of a build-out, assuming two fixtures for every 100 square feet of space and $3.50 per installed fixture, not including switches and sensors. Factors that will impact how much needs to be spent on fixtures and switches include the following:
- The type of fixtures already in place.
- Whether LED lighting or some lower-cost alternative will be used.
- The distance required for electrical runs.
It is not yet clear what market implications will result from these code changes. TI dollars will rise to cover the cost of new fixtures and switches, but how much of the expense will be amortized into the rent, and how much of the improvement dollars can be used to cover the new costs? The answers to those questions are still to be determined. Tenants and landlords should, at a bare minimum, consult an engineer or project manager to assess exactly what is needed to meet the code requirements.
Tenants should also retain a project manager or general contractor who receives volume-based discounts from vendors and who will research local rebates and incentives on fixtures and switches offered by both municipalities and states. This will ensure that costs are minimized and construction dollars are used to their maximum benefit. Additionally, the selection of a qualified project manager or general contractor will help ensure that these changes are factored in properly and costly change orders are avoided.