Ever since the outbreak of the financial crisis in 2008, cost control has been on the agenda for retail real estate firms. In the face of declining incomes and property values, companies have reduced head count, slashed budgets, and tried anything else they could come up with to cut down on how much money they spend. In many cases, they’ve deferred maintenance and cut back on cleaning schedules at properties.

In many areas, firms have cut to the bone. But there’s one place where there is still room for continued savings: energy. And given that energy costs are rising, the pressure to make properties more efficient is even higher. Indeed, although going Green is a goal for many firms, the incentive of cutting costs has proven to be a greater driver of improvements in energy management at shopping centers.

“There’s been a push to reduce expenses and to become as efficient as possible so we can protect assets and protect NOI,” says Alicia Busconi, vice president of property and asset management for Burlington, Mass.-based KeyPoint Partners LLC, which manages 230 retail properties across 13 states. “That forced us to look at properties with fresh eyes.”

The major areas of energy consumption for the 657,000 retail properties in the country are climate control and lighting. Overall, these buildings consume approximately $21 billion in energy. Properties typically employ electricity and natural gas.

And the U.S. Energy Information Association (EIA) forecasts that commercial property consumption of electricity will increase moderately from 2010 to 2011, while energy prices will be flat. The big change comes next year, when consumption is predicted to jump from 10.69 billion kilowatts per day to 10.99 billion kilowatts and prices are forecast to increase from 10.26 cents per kilowatt hour to 10.33 cents.

Natural gas consumption and prices are expected to decrease this year compared to 2009. While consumption is forecast to increase moderately in 2012, pricing is predicted to jump sharply to $9.74 per thousand cubic feet compared to $9.09 per thousand cubic feet.

In the past, owners and managers of enclosed properties have focused a lot of their energy management efforts on HVAC systems. They’ve invested in energy management software systems to increase energy efficiency. In contrast, strip center owners and managers are less concerned about heating and cooling since their tenants are responsible for those expenses.

Today, however, owners of both property types are focusing more on lighting, which can be much more of energy hog than climate control. For Jacksonville, Fla.-based Regency Centers Corp., which operates nearly 400 grocery-anchored and community shopping centers, lighting accounts for 90 percent of its energy load, according to Mark Peternell, vice president of sustainability for the firm.

New technologies are quickly evolving and steadily increasing the amount of savings firms can recognize. In addition, for enclosed properties, adopting energy efficient lighting not only can reduce costs by reducing electricity consumption directly, but can also reduce HVAC costs since new technologies give off much less heat than traditional systems. As a result, the Department of Energy estimates that lighting retrofits reduce electricity consumption by 30 percent to 50 percent of lighting energy and result in 10 percent to 20 percent savings in cooling costs.

Advances today include increased adoption of light emitting diode (LED) lights and compact fluorescent lights (CFLs) as both technologies mature. In addition, sophisticated lighting control systems are now available that enable owners and managers to optimize when lights in centers and parking lots are turned on or off down to individual fixtures.

“Lighting technology is changing so fast, and the changes are so dramatic compared to former types of lighting,” says Larry Jensen, executive vice president and director of client management for Atlanta-based Jones Lang LaSalle. In fact, experts advise that firms should evaluate lighting at their centers as part of an energy management plan every three years.

In the LED

Fans of LED lighting, also known as solid state lighting, point to its energy efficiency, lifecycle and ability to tolerate temperature variances. The LED lighting market is forecasted to grow to $8.3 billion by 2014, according to Strategies Unlimited, which has been tracking the LED lighting market for more than a decade.

LED lighting first became available in 1999, and recent advances in LED technology have made possible high-efficiency, high-brightness LEDs that are available in a full range of warm and neutral white colors instead of the cool or “blue” lights of previous years.

Current LEDs deliver approximately five times the efficiency of many incandescent bulbs and last up to 20 times longer than incandescent bulbs.

XenCom is working with Cree, a publicly-traded company that manufactures LED lighting, to create several LED-based replacements for lighting commonly found in malls. The two firms have developed a LED retrofit for 10-inch can lights, are working to develop LED lights to replace T-12 fluorescent cove lighting and hope to design LED strip lighting that would be appropriate for larger installations.

Yet because LED lighting costs three times as much as other lights, many owners and managers have been unable to justify the up-front investment to do total retrofits, according to Robert Cross, CEO of XenCom Inc., a Dallas-based firm that provides facilities management and energy management services for shopping centers.

As a result, the pressure to reduce short-term costs today is preventing firms from potentially reducing long-term costs. “Given the number of can lights in a mall—a mall we are working on has 650 of them, for example—the cost savings from a LED retrofit would be enormous,” Cross says. “They payback would take two to three years.”

Instead, owners and managers more typically are using LED lighting for accent and décor, particularly for enclosed shopping centers, Cross says.

LEDs also are appropriate for exterior use, Peternell says. In fact, the Department of Energy predicts that LED parking lot lights will reduce parking lot energy needs by more than 50 percent, and maintenance costs by more than 80 percent compared to traditional parking lot lights since LED lights are projected for replacement every 10 years on average compared to CFLs, which last only five years and incandescent lights, which need to be replaced annually.

Regency Centers is participating in the Department of Energy’s Solid State Lighting Technology Demonstration GATEWAY program, which showcases high-performance LED products. The REIT installed LED lighting in the parking lot as part of the extensive redevelopment of Willston Centre II, a 127,449-square-foot Safeway-anchored center in Falls Church, Va.

Controlling mentality

Because of the expense involved in LED retrofits, Peternell believes the biggest energy savings can be found by installing technology that controls when and how lighting is used. This technology, called networked lighting control systems, is web-enabled and accessible from any location.

For example, Regency Centers has installed netLiNK Controls at a number of its centers. Co-developed by Fort Worth, Texas-based WLS Lighting Systems and netLiNK, the technology controls site lighting and other site electrical devices through a base station and wireless node switches.

Using netLiNK, property owners can reduce the electrical consumption by precisely controlling on/off times. In a parking lot, for example, property managers can not only choose which individual poles to turn on or off, but can even fine-tune the decisions down to different fixture on the same pole.

This allows managers to reduce the amount of lighting within a specific area without making an entire section of the parking lot dark, says Dean Pritchard, president of WLS Lighting Systems. Moreover, the system is programmed to the longitude and latitude of a center, so it automatically knows when the sun sets and rises.

Property managers who have installed other energy management systems have also found success. For example, John Sebring, director of property management at Atlanta-based The Shopping Center Group, recently installed Commtiva’s energy management software at two shopping centers in Georgia. Sebring says the system resulted in 30 percent and 37 percent savings at the properties. “When we can drive down energy usage, we can reduce our operating costs,” he says. “We feel that gives us a competitive advantage ... because our rents are less than other centers that don’t practice energy management.”