Western Drought Has Developers Planning Ahead, And Low-Hanging Low-Flow Fruit Is Already Picked

In 2015, during California’s last years-long drought, then-Gov. Jerry Brown mandated that Californians cut back water use by 25%. The effort more or less worked, resulting in residents reducing their water use by 24.5%, but it had lasting effects. Water use today is 16% lower than it was in 2013. 

As much as 90% of the western U.S. is in some kind of drought. In some areas where the water scarcity is dire, local officials are responding by turning off the tap.

In Northern California’s Marin County, the water district is considering banning new homes that require hookups to the water system, the San Francisco Chronicle reported. In Utah, one town had grown “as remote workers flocked in from the West Coast and second homeowners staked weekend ranches,” but it instituted a construction moratorium on new homes that would hook up to the town’s water system, The New York Times reported.

For a number of reasons, much of Southern California isn't at that point yet. Most of the area has so far avoided having a drought emergency declared, and many water providers in the region aren't expecting water shortages. Gov. Gavin Newsom has asked Californians to voluntarily reduce water use by 15% but has said he doesn’t foresee the return of statewide required water reductions since the situation in different parts of the state varies. 

Still, many commercial real estate developers and property owners are looking past this drought — restrictions or not — and preparing for an even drier Southern California of the future.

Statewide water studies have shown that the majority of urban water use comes from landscaping, but a sector-by-sector breakdown for commercial real estate is harder to find. A 2013 Gensler study looking just at Downtown LA found that hotels were the largest consumers of water. Los Angeles Department of Water and Power data published in 2020 found that residential uses consume more water than commercial, but that included multifamily rentals, condos and single-family homes under the residential banner.

Kilroy Realty's portfolio covers approximately 14.6M SF, the majority of which is composed of office properties and life sciences spaces in the Bay Area and Southern California. In many of Kilroy’s San Diego properties, Kilroy Realty Director of Sustainability and Corporate Social Responsibility Vaishali Sampat said that pre-coronavirus data indicated that about 75% of their water use was going toward irrigation.

Many of Kilroy's office properties there are campus-type developments that have thirsty landscaping. The company has retrofitted millions of square feet of irrigation to reduce those costs, an effort that would pay for itself in three years or less, Sampat said. 

Anthony Brower, director of Gensler’s sustainable design practice, recalled an audit of an LA-area mall that was looking to cut back on its water usage. Gensler found that 30% of its water use was going not toward sinks and toilet flushes or even cooling towers but to the landscaping for the center, and that helped make a financial case for making a change to plants that required less water. The change saved the client roughly $80K a year, Brower estimated. 

“A lot of retail developers, especially the big retail malls, they want that lush landscape look,” Brower said. “Most of the native plantings don't carry that lush look, resulting in water-intensive plantings.”

New Kilroy Realty projects are built to LEED Platinum or Gold standards, which dictate an array of sustainability benchmarks, including for water use. The LEED benchmarks are, in some cases, more demanding than local and state building codes require, Sampat said, adding that more efficient buildings are more attractive to tenants, in part because more efficient buildings mean reduced operating costs that are then passed on to occupants.

Kilroy utilizes what are called green leases with all of its new or renewed leases. These leases include a clause that allows Kilroy to recover 100% of its capital improvement costs that result in savings, including water savings. Kilroy’s ability to negotiate that clause into its leases demonstrates that tenants want to lease spaces in high-performing, efficient buildings, Sampat said. 

Pursuing these levels of conservation also positions Kilroy to be in a good spot if drought conditions were to persist or return to an even greater degree. 

“It already helps us to mitigate our risk of upcoming legislation when it comes to water restrictions, or for the rising costs of utilities,” Sampat said. 

Despite its mainly Mediterranean climate, Southern California is, for now, in a better position than many other parts of the state because it gets water mostly from federal and state water systems rather than relying on snowmelt or rainfall, the Los Angeles Times reported.

Los Angeles said in May it isn’t anticipating any shortages, and the Metropolitan Water District of Southern California has enough water in storage to get it through this year and next if needed without shortages. San Diego’s water authority announced that it isn't expecting shortages or water restrictions this summer. 

After the last drought years that hit the state and prompted mandated water cutbacks, Californians' water use habits changed, and those effects are still being felt. But that might make future cutbacks in some sectors more challenging and more expensive. 

University of Southern California Lusk Center of Real Estate associate professor John Loper said that another round of reductions may be more difficult to make for some multifamily and office property owners who, after the last drought and the restrictions it spurred, have already picked the low-hanging fruit of water conservation — adding low-flow showerheads and toilets, for example. Next-level adjustments, like using reclaimed water, are more expensive to do in existing buildings than in new ones, Loper said. 

But some developers are thinking forward to a time when the cost of not having these measures in place would outweigh upfront expenses. Drew Shula, CEO and founder of Verdical Group, a sustainability and green building consulting firm, said that in nearly all the projects that Verdical works on, water is a chief concern. 

Verdical is on the sustainability team for a massive $2B project in Downtown Los Angeles. The project is on an eight-to-10-year completion timeline, and thinking that far into the future involves considering that water may not be as free-flowing as it is today. 

“The cost could really increase in the future if it becomes more and more scarce, so that's a capital expenditure for the developer to be aware of. There could be cost escalation there,” Shula said. “So to the extent that they can minimize water use wherever possible, it makes for a better project and a more valuable project.”