Embracing bold strategy benefits owners, tenants, employees
For years, the concept of sustainability in commercial real estate was argued to be a complex and competing interest with the financial goals and fiscal realities of a property.
Many industry experts thought that both sets of priorities would not work together, but now see there is a viable business case to be made.
Sustainable real estate practices increase the value of a property, attract and retain high-quality tenants, and mitigate short- and long-term risk, says Giselle Gagnon, Vice-President, National Services, Colliers Canada Real Estate Management Services (REMS).
Increase the value of a property
A building becomes more valuable when it becomes green-certified through the establishment of a series of energy conservation standards and environmental best practices.
A report, “On the Value of Environmental Certification in the Commercial Real Estate Market,” from the University of Southern California and Maastricht University, shows that rental, occupancy and pricing levels of green-certified buildings are significantly higher than for non-certified.
According to the report, a building with environmental and energy performance strong enough to earn a certification can charge more than 5 per cent more in rent – which translates to an increase in the value of an average office building of more than $4-million.
Another study on the benefits of green building, from the U.S. Green Building Council, suggests that, not only will rent be higher, but operating costs will be lower – about 8.5 per cent for existing buildings that are retrofitted.
Working with its clients, Colliers Canada REMS has achieved green-building certification across 47 per cent of its portfolio, by asset value, and is aiming to have 50 per cent certified by 2022.
Green-certified buildings contribute 50 per cent less greenhouse gases (GHGs) than conventionally constructed buildings.
“Identifying and using building technology is an integral part of our approach to property management and is central to reaching green certification goals,” explains Giselle Gagnon, Vice-President, National Services, Colliers Canada REMS.
In Toronto, for example, Peak Power’s Insight Platform has been installed across 19 properties managed by Colliers Canada REMS over the last two years.
The system uses wireless sensors to measure real-time metrics such as temperature, occupancy, electricity consumption and HVAC operations, and real-time adjustments can be made by the building operator.
It has resulted in 4,000 MWh hours saved and approximately $680,000 in saved energy costs. Furthermore, lighting retrofits tend to have the quickest payback period in office buildings, two to three years on average.
In 2020, Colliers REMS managed more than 22 LED upgrade projects in B.C. and Ontario. In all, 15,000 lamps were replaced, resulting in 1,800 MWh in avoided energy and $230,000 in cost savings.
Identifying and using building technology is an integral part of our approach to property management and is central to reaching green certification goals.
— Giselle Gagnon, Vice-President, National Services, Colliers Canada Real Estate Management Services
Attract and retain high-quality tenants
Sustainable practices are increasingly becoming a competitive advantage for companies looking to attract and retain high-quality tenants.
“We spend 90 per cent of our time indoors,” says Mer Ebrahimzadeh, National Energy and Sustainability Manager, Colliers Canada REMS, “and while indoor air quality has always been critical for the health and safety of a building, expectations have increased dramatically with COVID-19.”
Ebrahimzadeh points to a study, conducted by the Harvard Centre for Health and Global Environment, which shows that improved air quality elevates cognitive function among building occupants. Among the participants surveyed, 61 per cent scored higher in crisis response, focus and strategy when they worked in buildings that prioritized sustainable practices compared with conventional buildings.
“The continuing trend towards live/work facilities is a big part of sustainability,” says Benjamin Shinewald, President and Chief Executive Office of BOMA Canada, an umbrella group for Canada’s commercial real estate industry.
As many employees begin to question the cost of commuting to the office – the strain on their wallets, the time away from family, and pollution from traffic – they are becoming more attuned to their well-being while at work.
This includes how corporate values align with their own. The ability to retain high-quality tenants and accompanying talent though sustainable practices can help to avoid turnover costs, while improving business continuity and avoiding reputational risk.
Mitigate short- and long-term risk
In November 2020, the federal government introduced the Canadian Net-Zero Emissions Accountability Act, which legally binds the country to achieve net-zero emissions by 2050.
In April, it announced a new GHG reduction target of 40 to 45 per cent by 2030, from 2005 levels.
With buildings and construction contributing nearly 40 per cent of energy-related GHG emissions (according to a report from UK-based World Green Building Council), the risk of inaction becomes clearer each day, says Ebrahimzadeh.
By not helping to meet these targets, commercial real estate stakeholders face a series of short- and long-term risks that have potential to damage the viability of their property.
With rising GHG levels, the frequency and intensity of storms and the risk of flooding will increase; higher temperatures will see outdated building systems that cannot keep pace with interior comfort requirements; and rising sea levels may affect a building’s foundation, says Ebrahimzadeh.
“The cost of not mitigating these risks is high,” explains Gagnon. “The outcomes are increased operating and capital costs, exposure to fluctuating energy and carbon pricing, or even obsolescence. We are already seeing increased insurance premiums for buildings in high-risk zones.”
While every piece of commercial real estate has its own unique character, attributed to its location, occupants and function, industry experts believe they are united under a clear business case for sustainability.
“I’m not aware of any other business where the incentives to drive both sustainability and profitability are as perfectly aligned as they are in commercial real estate,” says Shinewald.
So where to go from here?
To stay ahead of the curve, building owners and operators can surround themselves with subject-matter experts who can advise on new environmental regulations and technology, and develop a roadmap for target areas that will deliver the highest economic and environmental benefits.