Sustainability themed edition
Article Type: Editorial From: Journal of Corporate Real Estate, Volume 15, Issue 1
Sustainability in corporate real estate is here to stay. The push factors are climate change and legislation, with more governments implementing it and those with existing legislation increasing the hurdles. The pull factors are increasingly being seen as the primary drivers by some organisations, the push factors just adding extra impetus. Pull factors for making real estate sustainable include corporate social responsibility (CSR); a recognition that it can improve the performance of people; that it is an attractor of talent,especially Gen Y; and that there is a direct value benefit, namely through reduced operating costs.
Some of the most recent climate research suggests that temperature changed is projected to increase. The Intergovernmental Panel on Climate Change (IPCC,2007) in their 2007 report showed that carbon dioxide (CO2) is higher than the natural range over the last 650,000 years and the same applies to methane. 11 of the 12 years between 1995 and 2006 ranked among the warmest years since 1850, the 100-year linear trend (1906 to 2005) showed an increase of 0.74°C. Sea levels between 1993 and 2003 rose by 3.1 mm per annum. Average arctic temperatures increased at almost twice the global average rate in the past 100 years. This has led them to project a best case scenario of a 1.8°C increase by 2100 and the average of the worst case scenarios is a rise of 4°C,but the maximum worst case scenario is showing plus 6°C.
Whether the projections turn into reality we will only know in 2100. What we do know is that the ability to reverse change is not going to be simple, not only because of the global politics, but more fundamentally, because of the complex linkages in the worlds weather system. Historic evidence shows that a change in one element can lead to unpredicted impacts as lags and multipliers come into play. To an extent, government legislation on energy consumption, their primary push factor, does not recognise this. However, that is irrelevant as the effect will be felt over time, and in the short-term reduction in energy is also a reaction to global politics and the need to reduce dependencies on other energy producing countries. Germany is investing €1.5 billion per year in energy research, the cost of Energiewende, the energy transition, is likely to hit €1 trillion (Schiermeier, 2013).
The pull factors are the more interesting drivers and the ones that are likely to force change through and with it bring innovation to sustainability in real estate. The presence and impact of CSR within organisations has increased significantly over the last decade, the witness to that in the private sector is the number of pages in annual reports dedicated to the subject. Within CSR is often how the organisation uses its corporate real estate but not the explicit discussion of the workplace.
The environment in which people work is rightly receiving more attention, both within CSR statements, but also from its impact on the organisation. The challenge remains how to measure changes in productivity within the office, the measure can no longer be the number of pieces of paper across the desk. F.W. Taylors Scientific Management approach to productivity is no longer appropriate for measuring performance of the office and in particular the knowledge worker(Taylor, 1911). One of the papers in this edition highlights the point by quoting the management guru, Drucker (1999) on knowledge workers, who identified them as “an intangible resource”. Measurement of their productivity remains a challenge.
The War for Talent defined by McKinsey & Co in 1997 (Michaels et al., 2001) identified the economic boom at the end of that decade as creating a shortage of people for jobs. As a corollary organisations looked at how they could attract people, other than through the spiral of higher salaries. Through the intervening period and the recession this has metamorphosed into looking for the “best talent”. As a consequence, we have seen a change in how the workplace is viewed and designed by a number of organisations,for example Google. The appeal to Gen Y is often cited with these less formal designs as being a driving force.
Finally, there is the question of value. Do sustainable buildings increase value? On a simple return basis that increased cost against rent and capital value increase has struggled to be proven, as the additional costs have not been matched by improved values. Possibly the correct question should be – what will be the fall in value over the next decade of none sustainable buildings?The impact of government measures, such as Energy Performance Certificates, will render those that do not comply seeing rent and capital values fall as demand from occupiers dries up. Occupiers will avoid buildings that have noticeably higher energy costs and pose a risk of capital expenditure to make them compliant.
This special edition of the journal looks at a number of the themes above.
Lucas Windlinger and his Swiss colleagues look at how a sustainable office can impact on its occupants, and looks at 18 buildings and some 1,500 people. They identify a number of positive features of sustainable buildings on the likes of work engagement, but the “holy grail” of a direct linkage to productivity appears to be limited.
There are then three articles that in different ways consider the question of the rental and capital value benefits from “green buildings”. Aurelien Decamp considers the assets of La Poste, the French Post Office, and used 558 buildings to assess the impact of energy efficiency on value. The paper demonstrates that energy efficiency increases value because of the willingness of the occupier to pay more for a sustainable building.
Support for additional value being generated from sustainable buildings is given in the paper by Marcelo Cajias & Daniel Piazolo. Their focus was on residential buildings in Germany and the results show returns of up to 3.15 percent and rent of €0.76 per square metre more over inefficient buildings.
The final paper from Peter Geiger and colleagues at the University of Regensburg considers sustainable real estate and asset allocation by investors. It highlights the opportunities for landlords to achieve higher returns from sustainable research.
Across all four articles the message is simple – sustainable buildings provide an improved environment and cost profile for the occupier and hence improve returns for the investor. More work is needed on the impact of sustainable buildings and these four papers are a step in the right direction.
Howard CookeCo-Editor
