Sustainability in the property industry, and society at large, is more important than ever. Not only are we preparing for the critical UN Climate Change Conference in Paris this December, but long awaited UK legislation is becoming clearer. The recent release of further guidance around the Energy Act 2011 provides clarity on Minimum Energy Efficiency Standards to commence in 2018. The Energy Savings Opportunity Scheme in also full swing with large organisations preparing for the December 2015 deadline.
Such regulatory requirements are reinforcing the need for owners and investors to manage and mitigate risk in their portfolios. The introduction of responsible property management activities is becoming more common, from sustainability due diligence at acquisition stage to detailed audits of existing portfolios. These are a key part of the environmental, social and governance (ESG) risk considerations now widely accepted as an essential part of good fund management.
Furthermore, there is increasing anecdotal evidence of value erosion – the “brown discount” – where sustainability risk factors have been identified. While we await hard evidence in the UK of enhanced rents and sale prices for more sustainable buildings, there is evidence that investors are paying attention. The 2015 CBRE EMEA Investor Intention Survey revealed that for 70 per cent of respondents sustainability is either ‘critical’, ‘one of the most important criteria’, or ‘definitely matters’ in the asset selection process. We are also seeing regular instances of price chipping for buildings that fall short of standards.
This may at first appear to be at odds with recent discussion around occupier sentiment. Some research may even lead you to believe that sustainability is no longer a serious consideration when making property choices. This is far from the truth, and is the result of an increasing sophistication of occupiers around the impacts of the built environment on their business, and potentially of assumptions that energy efficiency has already been addressed by owners.
Results of the CBRE 2014 European Occupier Survey showed a drop in importance for sustainability as a criteria for occupiers when making location decisions. This must, however, be considered in conjunction with other results. The research also revealed that 67 per cent of respondents reported their workplace strategy was primarily driven by the need to attract and retain talent – dislodging cost savings as the key driver. The second most popular reason was the desire to increase employee productivity (46 per cent of respondents, up from 37 per cent last year). The survey also revealed that 65 per cent of companies seek quality office space with excellent transport accessibility and proximity to amenities such as shops, restaurants and gyms. The high correlation between indoor environment quality (eg: air, lighting, acoustics and thermal comfort) and human performance means that buildings, which provide enhanced environments will be in demand.
From these results, and evidence in the market, we can deduce that clever companies are choosing buildings that can provide high air quality, access to natural light and views, facilities to promote physical activity and access to public transport. These features are recognised by the main building certification labels such as BREEAM, LEED, DGNB and HQE as advantageous green features. It could be argued that occupiers are not ignoring sustainability, but have become more precise in their demands, reflecting the way the building impacts their business performance.
Developers, owners and investors need to consider these evolving needs of occupiers but not at the expense of more commonly reported sustainability measures - operating costs and corporate responsibly reporting are still important factors. The skill for designers and building managers today is to balance the people centric features of a sustainable building with ongoing energy and resource efficiency through the use of technology and maintenance practices for optimal performance. It is also worth noting that the features, which appeal to occupiers in search of increased staff wellbeing and productivity need not be confined to new buildings. By taking an holistic approach to building refurbishment and repositioning one can achieve good environmental performance, regulatory compliance and renewed occupier appeal, creating a truly sustainable asset.
The convergence of human wellbeing and productivity expectations and government legislation around energy efficiency and carbon emissions leads us closer to the point where sustainability in property is synonymous with quality. That is good news for people and the environment.
About the author
Rebecca Pearce is Head of Sustainability at CBRE
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