Energy Myth #1: "The Tenant Pays the Energy Bill Anyway"
Updated: Jul 23
For many property owners and asset managers, energy costs are still seen as a pass-through expense. Since electricity and gas are generally recoverable through service charges, energy procurement often receives little strategic attention. However, this assumption no longer reflects today's market realities. Rising operating costs, ESG requirements, changing CO₂ regulations and increasing tenant expectations have transformed energy procurement into a key factor influencing both asset performance and long-term property value.
This article is the first in our "Energy Myths in Real Estate" series, where we challenge common misconceptions with market insights and practical perspectives.
Energy Costs Are More Significant Than Many Assume
Energy has become one of the largest cost components in commercial real estate operations. In office buildings, it can account for up to one quarter of total operating expenses, making it one of the biggest drivers within utility and facility costs.
At the same time, operating costs in premium office assets have risen dramatically over recent years. Unlike many other expenses, however, a substantial share of these costs can be actively influenced. Strategic procurement, competitive tendering and continuous optimization provide owners with opportunities to reduce expenses rather than simply accepting contract renewals or default supply agreements.
Viewing energy solely as an unavoidable operating expense overlooks one of the few cost categories that can be managed proactively.
Why the "Tenant Pays" Argument No Longer Holds
The assumption that tenants absorb energy costs ignores several important market developments.
First, tenants increasingly evaluate properties based on total occupancy costs rather than headline rent alone. Lower utility expenses improve affordability and create additional flexibility for landlords, whether through stronger leasing competitiveness or higher achievable base rents.
Second, vacant space immediately shifts energy costs back to the property owner. Every unoccupied square metre generates expenses that cannot be recovered from tenants, directly affecting asset profitability.
Finally, regulatory changes continue to increase owners' financial exposure to carbon costs. Buildings with poor energy performance are expected to carry a growing share of CO₂-related expenses, making building efficiency and procurement strategies increasingly important from both an operational and financial perspective.
Energy Procurement Has Become a Value Driver
Energy management today extends far beyond cost reduction. It has become an important component of ESG performance, asset resilience and long-term investment value.
Choosing renewable electricity and low-carbon gas solutions can significantly reduce a building's carbon footprint while supporting regulatory compliance and reducing future transition risks. As investors, lenders and occupiers place greater emphasis on sustainability, procurement decisions increasingly contribute to preserving asset attractiveness and limiting stranding risk.
Professional energy procurement should therefore be viewed as a strategic investment rather than an administrative purchasing process.
Conclusion
The idea that energy costs are simply passed on to tenants is becoming increasingly outdated. Modern real estate management requires a broader perspective that considers total occupancy costs, vacancy risk, regulatory developments and ESG performance.
Owners who actively optimize their energy procurement gain more than lower utility costs. They strengthen leasing competitiveness, improve operational performance and protect long-term asset value. In today's market, energy procurement is no longer a back-office function—it is a strategic lever for value creation.
