Sustainable workspaces: advantages in the market

Well worth doing

7 December 2015

Occupiers may not appear to be choosing buildings for their green credentials, but sustainable workspaces have a distinct advantage in the market, says Rebecca Pearce

Legislation around energy efficiency and climate change is driving owners and investors to manage and mitigate new risks in their property portfolios. The adoption of responsible property management strategies is now more common, from sustainability due diligence at acquisition stage to detailed audits of existing portfolios.

For investors and ratings agencies, the management of environmental, social and governance risk is increasingly seen as an essential part of good fund management. Occupiers are not exempt from the legislation pipeline. The EU’s Energy Efficiency Directive requires all large companies to audit and highlight opportunities to increase energy efficiency. In the UK, this is being driven through the Energy Savings and Opportunities Scheme with most EU member states having similar requirements (see Property journal May/June, p24).

There is anecdotal evidence of property values being impaired where sustainability performance is poor (the ‘brown discount’) and while we await hard evidence of enhanced rents and values being achieved for more sustainable buildings, there are certainly instances of price chipping where buildings fall short of standards.

For example, where buildings fall below the UK’s future Minimum Energy Performance Standards, transaction price reductions have already been observed to take in the cost of upgrading. This reflects the fact that from 2018 it will be unlawful to lease most spaces with F and G rated Energy Performance Certificates, with an impact on rental income and value. In some instances, the reductions are greater than the likely cost of upgrade works, perhaps building in inconvenience and reputation impacts of non-compliance.

Occupier priorities

The CBRE 2015 EMEA Investor Intentions Survey revealed that for 70% of respondents, sustainability is either ‘critical’, ‘one of the most important criteria’, or ‘definitely matters’ in the asset selection process (see Figure 1). Results are even more pronounced when considering responses from the ‘institutional investors’, a group traditionally more focused on long term performance and with a greater risk awareness – over 85% of responses were in these three categories.

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Figure 1: Investor Intentions Survey

In contrast, the results of CBRE’s 2014 European Occupier Survey showed occupiers ranking sustainability lower than previously in the criteria used to make property decisions. However, this needs to be considered in conjunction with other results. Some 67% of respondents reported that their workplace strategy was primarily driven by the need to attract and retain talent – moving above cost savings as the key driver. The second most important criterion expressed by 46% of respondents was the desire to increase employee productivity.

The survey revealed that 65% of companies look for quality office space with excellent transport accessibility and proximity to amenities such as shops, restaurants and gyms.

These are all attributes of green or sustainable buildings, so is it really the case that occupiers are focusing on the aspects of sustainability that impact their bottom line?

Interest in sustainability and associated features may also vary with the type of occupier and their location. CBRE, with Kingsley Associates, undertakes annual satisfaction surveys of occupiers in premier properties – iconic buildings that adopt premium property management services and are often occupied by high-profile companies. When asked about sustainable property management practices, 50% of respondents noted that green practices were a high or very high priority as they search for space, and 39% noted that green certifications were valuable or very valuable (see Figure 2).

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Figure 2: Premier property priorities

Interestingly, 25% of occupiers noted that they were likely or very likely to co-invest in sustainability improvements with landlords. This could indicate that with the right engagement, and the right projects, the split incentive that has long been a barrier to investment in building improvements may become a thing of the past.

Multinational companies with well developed corporate responsibility programmes and public sustainability commitments are often the most active in conversations about asset level sustainability, perhaps reflecting the resource available to address the issue and benefits due to their higher energy costs from larger footprints. Equally, smaller, younger companies can also be keen participants as staff members act seek to align ‘responsible business’ values with their physical environment.

Enabling staff performance

The high correlation between the indoor environment, e.g. air quality, lighting, acoustic qualities and thermal comfort, and human performance means that buildings that provide enhanced surroundings will be in demand.

Human resources generally make up 80%-90% of a company’s operating costs, whereas utility consumption (energy and water) is less than 10%. Investing in improvements for human performance and productivity will therefore have a much greater overall impact. Clever companies are choosing buildings that provide good air quality,access to natural light and views, facilities that promote physical activity and proximity to public transport.

These ‘green’ features are all recognised by building certification labels such as BREEAM, LEED, DGNB and HQE as advantageous. So in fact, occupiers are not ignoring sustainability, but have simply become more sophisticated in their demands, focusing on the way buildings can sustain and enhance the performance of their people.

WELL standard

The emergence of the WELL Building Standard from the US further highlights this shift in focus. Developed by Delos and the Well Building Institute with input from design and healthcare professionals, the standard addresses seven key concepts – air, water, nourishment, light, fitness, comfort and mind.

Minimum ‘preconditions’, performance criteria and testing requirements are set out with for certification by accredited auditors with an overview by the Green Business Certification Inc – the same body that oversees LEED certifications. While BREEAM and LEED include expectations and credits for health and wellbeing in the various certification tools, the WELL standard is solely focused on these issues and does not include broader construction and operational aspects such as energy and construction waste.

CBRE piloted the WELL standard during the creation of a new workplace at its Los Angeles headquarters. This refurbishment involved a move to agile working and concurrently achieved a LEED Gold certification for Commercial Interiors. Post occupancy reviews report that 83% of employees feel more productive and 92% said the space has created a positive effect on their health and wellbeing (see Figure 3).

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Figure 3: CBRE employee survey

It may be difficult to assign causality to these results, but the same survey revealed that 74% reported using stairs the majority of the time (as opposed to elevators) and 51% use the sit/stand adjustable desks – both initiatives recommended to avoid detrimental workplace health impacts.

In London, the developers of 22 Bishopsgate are using the WELL principles to guide the choice and performance of mechanical, electrical and plumbing systems alongside the BREEAM Excellent goal for the development.

The supply side needs to respond to this evolving occupier need but not at the expense of more commonly recognised sustainability measures. Operating costs and corporate responsibility reporting are still important factors. The skill required of designers and building managers today is to balance the people-centric features of a sustainable building with energy and resource efficiency through the use of technology and maintenance practices.

This applies equally to new and existing buildings. A holistic approach to refurbishment, for example, can achieve good environmental performance, regulatory compliance and renewed occupier appeal, creating a truly sustainable asset. The convergence of human wellbeing, increased productivity and government policy on energy efficiency and carbon emissions leads us closer to the point where sustainability in property is synonymous with quality.

Rebecca Pearce is Head of Sustainability at CBRE

Further information