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Trends and Motivations Driving Sustainability in Commercial Real Estate

This chapter explores the emerging trends and motivations behind sustainability in commercial property. The demand for sustainable properties, certified buildings, and green features has significantly increased in recent years. It delves into quantitative motivators such as investment returns and operating cost reductions, as well as qualitative factors like employee health, productivity, and compliance with regulations. The chapter outlines the financial and environmental benefits of adopting sustainable practices in commercial real estate, promoting a win-win strategy for property owners and tenants.

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Trends and Motivations Driving Sustainability in Commercial Real Estate

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  1. MOTIVATIONS AND TRENDS 1

  2. Slide header copy In This Chapter • Sustainability in commercial property • Quantitative motivators • Qualitative motivators • Client types 1-1 1-1

  3. Slide header copy Market Size • Demand for sustainable properties, certified buildings, green features, and sustainable commercial interiors has grown in last several years 1-2

  4. Slide header copy Projected Growth Source: Reprinted with permission of McGraw-Hill Construction, Commercial & Institutional Green Building: Green Trends Driving Market Change, New York, NY: McGraw-Hill Construction; 2008. 1-1 1-3

  5. Slide header copy Quantitative Motivators • Use caution when presenting results from studies • Study of quantitative return from sustainable property is work in progress • Methodological challenges may produce “outlier” results 1-4

  6. Slide header copy Sustainable Property, Value, and Investment Risk • According to one of largest national studies available, sustainable properties: • Gain value at rate similar to or slightly better than comp. conventional properties • Hold similar or slightly reduced investment risks compared to like properties Source: Pivo, G. and J.D. Fisher. “Investment Returns from Responsible Property Investments: Energy Efficient Transit-oriented and Urban Regeneration Office Properties in the US from 1998-2007,”www.responsibleproperty.net/assets/files/pivo_fisher_10_11_08.pdf 1-1 1-5

  7. Slide header copy Decreased Operating Costs • According to EPA and DOE, significant payback is available from low- to medium-cost upgrades: • Recalibrating thermostats • Relamping with higher efficiency fluorescent bulbs • Changing incandescent bulbs to compact fluorescent lamps (CFLs) • Using ENERGY STAR–labeled equipment 1-6

  8. Slide header copy Projected Cost Savings for Low-cost Changes Source: Reprinted with permission of McGraw-Hill Construction, Commercial & Institutional Green Building: Green Trends Driving Market Change, New York, NY: McGraw-Hill Construction; 2008. 1-1 1-7

  9. Slide header copy The Win-Win-Win • Reduced energy consumption a win-win-win: • Increase profit margin for the owner • Bring down costs for tenants • Reduce carbon emissions and conserve natural resources 1-8

  10. Slide header copy Payback from Upgrading UAD Systems Note that churn cost is cost of replacing employees and includes advertising cost, employee training, and lost productivity 1-1 1-9

  11. Slide header copy Improving Efficiency and Saving Costs: Adobe Towers 1-1 1-10

  12. Slide header copy Discussing Payback with Clients • Examples of payback may not be replicated in client’s situation. • Large-scale changes should be energy-modeled for impact on whole building system. • Changes in efficiency of one system may affect other systems. • The higher the going-in energy cost, the shorter the payback period. 1-11

  13. Slide header copy Increased Tenant Retention • Tenant retention can be quantified for ROI as avoided costs in tenant replacement 1-12

  14. Slide header copy Qualitative Motivators • Marketing value for corporate clients and tenants • Employee productivity and health • Lower risk of decreasing value/obsolescence • Staying ahead of regulation 1-1 1-13

  15. Slide header copy Marketing Value • Market differentiation • Benefit to the financial performance of the company • Early market entry = long-term consumer loyalty 1-14

  16. Slide header copy Value of Supporting Productivity and Health • Reduced absenteeism • Longer term employee loyalty gains • Increased productivity • Ability to attract and maintain high quality workers 1-1 1-15

  17. Slide header copy Building Green and Reduced Risk • Reduced risk from employee health liability • Reduced climate change liability • Protection from increases in resource cost • Protection from sprawl • Reduced risk from future government regulation 1-16

  18. Slide header copy Examples of Regulation Case Studies • Seattle • Boston Sources: Photo of Seattle Public Library reprinted with permission of King County Seattle Public Library, “About the Library,” www.spl.org/default.asp?pageID=branch_central_about&branchID=1. Photo of One Beacon Place Reprinted with permission of CB Richard Ellis. One Beacon Street: One Beacon Is Going Green!, www.1beaconst.com/goinggreen.html. 1-1 1-17

  19. Slide header copy Exercise: Reduced Risk and Sustainability • Consider the example of Building Green and Building Blue. • In the spaces provided, write your answers. 1-18

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