Office Owners Tapped Out As Historic Drought Spurs Water-Reduction Needs

Drought is so ubiquitous in California that developers and property owners say they’re running out of options to reduce water usage at office properties without making significant investments that are difficult to stomach with reduced property occupancies and stagnant rental rates.

In recent years, as the severity of California’s droughts has worsened, property owners have implemented new technology and initiatives to reduce their water usage, sometimes at the behest of state or local governments. But now, the low-hanging fruit has been plucked, leaving more expensive, difficult options on the table as the state contends with its worst drought in 1,200 years.

For example, Kilroy Realty is nearing its goal of reducing water usage by 20% compared to its 2015 baseline. The company’s water usage was down 17% as of the end of 2021, but Kilroy Director of Sustainability and Corporate Social Responsibility Vaishali Sampat said the final stretch might be the trickiest.

“Now we're looking sort of beyond things our sustainability team can do, and efficiency projects, to how we actually operate our buildings,” Sampat told Bisnow. “Do we need to rethink that to lead to further water conservation measures? Because you get to a point where it does get a little bit more tough, you have to be a little more creative, and I think we're at that level right now.”

Kilroy is looking at its HVAC systems, some of which include water-cooled towers. By using a process called ionization, these towers could become more water-efficient, creating a possible avenue for water conservation.

And at some of its buildings, Kilroy has already implemented strategies like reclaiming water for watering plants or flushing toilets and installing smart meters to help determine when plants need water instead of standard sprinklers that water regularly regardless of need. Now, the company is looking to asset management teams for input on where landscaping could be replaced with drought-tolerant plants, and whether pressure-washing certain properties’ exteriors, roofs and windows could be reduced.

Of course, cutting back on cleaning and landscaping efforts makes a difference in the appearance of buildings, at a time when landlords especially need to make a good impression. That means that while regular cleanings are skipped for some properties, others are kept shiny and sparkling. Finding the balance between aesthetics and conservation is different for every building, Sampat said.

The efforts at Kilroy’s existing buildings are still in the tier of improvements that are easier to achieve, Sampat said. More costly improvements, such as greywater systems, are only considered for projects that are in development.

Not only is implementing water-saving measures costly, but landlords are often uncertain if they’ll be able to make that money back.

As the office market remains challenging, property managers, landlords and developers are reluctant to implement sustainability improvements to water systems, in part due to the cost hurdles associated, as there is little to no guarantee that those empty spaces will be filled by tenants.

As a result, landlords have to adjust what metrics they use to determine what conservation will ultimately be most beneficial to both sustainability efforts and the bottom line, CBRE Senior Energy and Sustainability Manager Sarah Manson said.

“It’s either gallons per square foot or gallons per occupant, and with return to work, occupancy is all over the place, so oftentimes we are looking at gallons per square foot against the national average, and folks are monitoring how each of their sites are doing against the national average and then prioritizing,” she told Bisnow.

The public relations aspect of water conservation, however, is a dominant pull.

Manson said that landlords make it a point to use signage on properties notifying tenants about water sustainability measures, such as recycled water, particularly among larger campuses with heavier landscaping demands, in part due to the appearance such lavish upkeep presents during a drought. 

“It’s definitely an optics thing,” Manson said.

Manson said that increasingly, water sustainability efforts are considered at the design level, particularly in regard to landscaping, with an increased focus on initiatives such as xeriscaping, which involves adapting plant life to a project that requires generally less water upkeep, often by incorporating drought-resistant plants or native species that are well-suited to the environment.

And there’s a need to put employees’ minds at ease.

“It’s about the employee experience and that they feel very comfortable about the corporate campus that they are stepping onto from a sustainability perspective,” she said.

Other initiatives Manson noted include an increased focus on tracking and monitoring usage, particularly regarding water leak detection, along with domestic metering, as well as thinking about sustainability efforts when it comes to building maintenance. 

“Sustainability has been a part of that conversation. And that gets to the optics as well, and balancing the employee experience and how much the employees care about sustainability, versus how much they care about spots on the windows,” she said.  

In less dense areas like San Francisco’s East Bay, where landscaping for large office campuses and complexes is often an attractive selling point, landlords and property managers can be expected to loosen the reins of upkeep as the drought continues, according to Allen Matkins partner David Osias, who has experience in a variety of water rights, water supply and water resource matters.

Commercial development in general could even be stifled in some cases, particularly those projects with substantial water demands. 

“New development of commercial properties in certain areas may cease temporarily due to water supply assessments requiring sufficient supplies, which certain jurisdictions cannot provide. This likely won’t be the case in San Diego and Orange County, given their robust non-State Water Project local supplies. Another anomaly based on local supply is Marin County, which currently has full reservoirs,” Osias said.

The lack of clarity in the office market right now about how much space tenants need and how often workers will be in the office gives pause to landlords staring down expensive water-saving upgrades, said Gensler Global Climate Action & Sustainability Leader Anthony Brower, who consults with clients across commercial real estate on sustainability issues.

While even the most dire reports admit that some buildings will weather whatever’s ahead better than others, citing the oft-repeated flight-to-quality mantra, the uncertain office market is causing some owners to wait on any pricey water-saving upgrades.

“Why am I going to upgrade my facility if I’m not sure that I’m going to be 100% leased in the next couple of months to cover and pay for it?” Brower said of the thought process of some building owners.

Even with that in mind, Brower said that he has seen a marked increase in clients for whom reducing water consumption was top of mind, estimating that the rise could be as much as 30% to 40% more inquiries about water-saving measures and use reductions this year compared to 2021.

San Francisco’s Planning Department Chief of Staff Dan Sider hasn’t noticed any particular water sustainability future-proofing in regard to proposed developments at the planning stage beyond the existing criteria already in place under the California Environmental Quality Act, particularly due to the city’s dense urbanized layout. 

“This is a place that by design affords a type of construction that is dramatically more sustainable than its counterparts anywhere else,” he said.

“There’s tons of stuff influencing our market and our regulatory environment and where developers are heading — my own feeling is that the drought is not among the chief influencers,” Sider said.