Sustainability goals driving differentiation in office market

11 November 2009

Third annual sustainability survey by CoreNet Global and Jones Lang LaSalle finds that companies are investing funds selectively to achieve sustainability goals

Corporate real estate (CRE) executives, whose companies drive demand for office space, are increasingly willing to invest in refurbishing their owned assets to meet sustainability goals, according to the results of the 2009 CoreNet Global and Jones Lang LaSalle sustainability survey. Commenting on the survey, Julie Hirigoyen, lead director of Jones Lang LaSalle Sustainability Services said: “The findings of this survey provide stronger evidence than ever that sustainability concerns are impacting on corporate real estate decision-making. As this message filters through the markets, we may begin to see signs of a two-tier market emerging whereby buildings that do not meet certain sustainability standards incur higher rates of depreciation and obsolescence.”
Critical business issue
In the survey of CRE executives responsible for real estate portfolios totaling billions of square feet across the globe, 70 percent said that sustainability is a critical business issue for CRE today. A significant 89 percent consider sustainability criteria in making leasing decisions, with 46 percent always considering energy labels (such as Energy Star or HPE), and 41 percent always considering green building certifications (such as LEED, BREEAM, IEMA, NABERS Energy, Green Star, GreenMark or CASBEE). Even though obtaining funds to implement sustainability strategies is a difficult or an extremely difficult challenge for 67 percent of respondents, 74 percent would pay a premium (generally 1–5 percent) to retrofit-owned space for sustainability criteria, up from 53 percent in 2008.
Premium rents
Although most executives view sustainability as a priority, only 37 percent would consider paying a premium (between 1-10 percent), and another 21 percent indicated that they would only be willing to pay a premium rent if it was offset by lower operating costs.
Key findings
CoreNet Global and Jones Lang LaSalle 2009 sustainability survey key findings
•       Sustainability is a critical business issue today for 70 percent of respondents and 89 percent consider sustainability criteria in their location decisions
•       Green building certifications are always considered by 41 percent and energy labels by 46 percent in administering their portfolio
•       74 percent say they are willing to pay a premium to retrofit space that they own for sustainability criteria
•       21 percent would only pay more rent for sustainable space if offset by lower operating costs, while 8 percent expect to pay less and 34 percent the same
•       60 percent are adopting workplace strategies to meet sustainability goals while reducing overall occupancy costs
“These results clearly show that sustainability as an issue is here to stay, but companies are increasingly aware of the commercial realities,” said Dan Probst, chairman of Energy and Sustainability at Jones Lang LaSalle. “It is no longer enough to simply be ‘green’; organisations want to see the benefits to the bottom line.”
“The survey results show that corporate real estate executives continue to be very focused on sustainability,” said Michael Anderson, research manager at CoreNet Global. “Despite the economic challenges of the past year, more than a third of corporate real estate executives would consider paying extra for a green lease, and nearly three-quarters would pay to retrofit properties they own.”
The focus on cost reductions is seen in the 60 percent that are adopting workplace strategies to meet sustainability goals while reducing overall occupancy costs, up from 54 percent in 2008. CRE executives also continue to focus on strategies that are easy to implement and provide short-term cost savings, such as energy efficiency programs and waste recycling.
In terms of metrics, companies want to see bottom-line outcomes, with energy costs ranked as the most important portfolio metric by 37 percent followed by employee health and productivity at 29 percent, and 45 percent are highly involved in providing sustainability performance data.
However, making targeted investments in sustainability initiatives can be challenging. More than 50 percent said that insufficient industry metrics, difficulty in calculating ROI and lack of tools for collecting necessary performance data are difficult or extremely difficult challenges. “Companies are looking for help in making targeted sustainability investment decisions and measuring the results in terms of both environmental and financial performance,” Probst said “Clarification of industry metrics globally, tools that collect data and turn it into information, and clear methodologies for calculating project ROI will be critical to overcoming these challenges.”
The global survey of 231 corporate real estate executives was conducted in September and October 2009. A copy of the summary report is available an Jones Lang LaSalle’s web site at http://www.joneslanglasalle.com/pages/SustainabilityResearch.aspx and on CoreNet Global’s website at www.corenetglobal.org.