By Elden Freeman
To be successful, a business must excel at its core competencies, but today’s consumers (and workers) expect good corporate citizenship from the companies they interact with. They are more likely to do business with organizations that take on the responsibility of improving their business practices with not just profitability, but overall sustainability in mind.
Along with transportation and manufacturing, the efficiency and environmental impact of the physical structures where an organization does business are key factors in its effect on the environment. Every business, even the most “virtual”, requires a physical presence in a commercial building somewhere. This is an area where commercial real estate practitioners can exert a strong influence as educators and change agents in helping businesses green their practices. The National Association of Green Agents and Brokers has led the way in educating real estate professionals on these issues.
On the eve of the Copenhagen Climate Conference, environmental issues are making headlines even more than usual. Though the exact shape of new regulatory regimes concerning business and the environment aren’t clearly outlined, with even China announcing reduced greenhouse gas emissions targets, it’s safe to say that businesses everywhere will have to factor their ecological footprint into the bottom line. Beyond the simple advantage of being ahead of regulatory change, there is also the primary benefit to business of reduced costs: green buildings are more energy efficient, so going green saves money. But another benefit, a sort of bonus corollary to the first, is that it also increases productivity. Workers are more productive and suffer fewer health problems in green buildings.
The appeal to workers is manifold. Studies indicate that workers in more environmentally sound buildings (such as those certified to standards like LEED, Green Globes and BOMA GO Green Plus) provide a more comfortable work environment that boosts productivity. As well, workers are less likely to be absent due to illness, which has the dual benefit of reducing lost productivity and reducing costs associated with health benefits. In terms of mental health, workers feel some of their concerns about the environment eased by the fact that they work in a building that addresses an issue that gets much worrying discussion and media exposure.
Some green-certified buildings have even acted like employee-magnets, with workers describing the ability to work in such a building as a reason for taking jobs in them. These workers also find more affinity and loyalty to the company they work for when they feel it is socially responsible. Human resources costs associated with employee churn are also reduced, as green workplaces have higher employee retention rates.
For businesses in retail, the same factors that attract employees also attract customers. Another bonus is that a business located in a green building also burnishes its image as environmentally conscious. And the same magnet effect also affects customers – since certified green buildings are still the exception rather than the norm, being housed in a green commercial building will result in an increase in walk-in traffic. Even for companies that aren’t in retail, the benefits of having green facilities still apply. Customers factor corporate responsibility into their decisions and being environmentally conscious is a great advantage.
Investors, as this column previously discussed, are keen for the competitive advantage that green buildings can bring a real estate portfolio. Commercial tenants also have good reason to seek out green locations to benefit their business. For a real estate practitioner in the commercial sector, the ability to navigate and understand all of the certifications, regulations, and potential retrofits that can affect the environmental impact of commercial properties confers a great competitive edge today, and will be a necessity in the market tomorrow.
NAGAB is a leader in educating real estate professionals, and has partnered with businesses, non-profits, and different levels of government to co-ordinate the delivery of environmental services and information to green real estate practitioners and, through them, commercial and residential real estate holders.
Elden Freeman B.A., M.E.S, Broker is the founder and executive director of the non-profit National Association of Green Agents and Brokers (NAGAB). For more information about the advantages of NAGAB membership and the courses and certifications it offers, visit www.nagab.org.
Regardless of the reasons, I think there are three items which do not bode well for commercial real estate prices in the next few years. First and perhaps most overlooked, investment or income producing properties, during the boom years, where purchased more for appreciation, rather than “income”. In other words, many deals were justified by investors who were willing to forego a rate of return (income), for future price appreciation. But as its name suggests, this is not what “income producing property” is all about. If it doesn’t give you an income stream in good times, it sure won’t be able to in bad ones. Only a “flipper” can make money on appreciation, and the trick is to know when to get in and when to get out. Second, the credit crisis has reduced the chances of obtaining loans, and also the leverage previously afforded owners/purchasers. Less money means less deals, and more cash out of pocket. This can only lead to lower prices. Third, we are for now in a “new” economy (although Americans often prove to be driven by fads and can be short sighted), where we will consume less, which should mean less need for commercial space. If there is one truth that history makes clear over and over again, it’s that most sectors of the economy will move in conjunction with one another, not in spite of one another. No doubt prices are tied to supply and demand issues, but too much of a swing invites change. So when prices double and triple in one sector while the rest of the economy isn’t going in that direction, chances are some force will snap that imbalance back into its proper place in the overall economy. And that change can be from social, economic, and/or political means.