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The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
The Green Advantage: Analysis of National Landlords\' Committment to Sustinability
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The Green Advantage: Analysis of National Landlords\' Committment to Sustinability

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The recent global economic downturn did not have the …

The recent global economic downturn did not have the
expected negative impact on consumer appetite for green
products and services, and this continuing consumer demand
is a driving force behind the growing number of CEOs in all
sectors who feel that sustainability issues will increasingly
become integral to all aspects of their business. This thinking is in turn becoming the market force, driving commercial
landlords to increasingly view green features as a necessity when it comes to attracting and retaining these sustainably minded
businesses as tenants, although the reality is that many landlords do not yet have much to offer in the way of sustainable product and are only just beginning to take their portfolios in this direction.

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  • 1. BUSIN E S S BRIEF ING THE GREEN ADvANTAGE AN ANALYSIS OF NATIONAL LANDLORDS’ COMMITMENT TO SUSTAINABILITY WINTER ‘11 | A NATIO NAL SUSTAINABIL ITY PRACTICE G ROUP PUBL IC ATIO N, CONTENTS Ex EC U TIvE S U mmARY Executive Summary The recent global economic downturn did not have the 1 Introduction expected negative impact on consumer appetite for green products and services, and this continuing consumer demand 3 In the Public Eye and in The Bank is a driving force behind the growing number of CEOs in all 4 Overview of Survey Results sectors who feel that sustainability issues will increasingly 5 Analysis of Survey Results become integral to all aspects of their business. This thinking is in turn becoming the market force, driving commercial landlords to increasingly view green features as a necessity when it comes to attracting and retaining these sustainably- minded businesses as tenants, although the reality is that Cushman & Wakefield, Ltd., Broker age 33 Yonge Street, Suite 1000 many landlords do not yet have much to offer in the way of Toronto, Ontar io M5E 1S9 Tel (416) 862-0611 sustainable product and are only just beginning to take their www.cushmanwakefield.com portfolios in this direction. INTRODUCTION: THE GREEN ADvANTAGE Consumer demand for green products and services was not set back by the recession, despite what common wisdom might have predicted. And just as it is becoming virtually impossible to find a retailer that doesn’t sell its own version of the now ubiquitous re-usable shopping tote, it would be virtually impossible to find a new construction building that doesn’t list numerous green features among its selling points. In fact, green features are becoming table stakes, and landlords are increasingly recognizing their importance to staying in the game. And, if not a game, commercial real estate is a competition, and the current perception seems to be that whoever holds the property with the most green features wins. B U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 1
  • 2. T H E G R E E N A D vA N TA G E A N A T I O N A L S U S T A I N A B I L I T Y P R A C T I C E G R O U P P U B L I C AT I O NCushman & That is how commercial real estate landlords across Canada seem to view the situation, at least. In lateWakefield conducted 2010, Cushman & Wakefield conducted a Canada-wide survey of landlords in all commercial reala Canada-wide estate asset classes and the vast majority—71.4%—felt that sustainable green features aided in thesurvey of landlordsin all commercial marketing of their properties, while 85.7% believed that energy efficiency specifically was a drivingreal estate asset factor influencing tenancy occupancy decisions in their portfolios. While there will always be aclasses and the vast segment of tenants for whom the lowest cost option is more important than the greenest one, 40% ofmajority—71.4%—felt landlords surveyed believed that sustainability issues would be very important to their company’s futurethat sustainable green performance—there is clearly sense that the segment of tenants whose stakeholders (whether employees,features aided in the clients or shareholders) place value on sustainability issues is growing, and that landlords need to addressmarketing of theirproperties, while 85.7% these issues in order to remain competitive.believed that energyefficiency specifically Landlords are right to take this view. For “Emerging Trends in Real Estate 2011”, PricewaterhouseCooperswas a driving factor (PwC) and the Urban Land Institute (ULI) polled more than 600 real estate experts and foundinfluencing tenancy widespread agreement that green buildings will become increasingly sought after as tenants look to cutoccupancy decisions in operating costs and back up corporate environmental and social responsibility goals. The majority alsotheir portfolios. described sustainability issues as “unavoidable” for the sector. This expectation is reinforced by the CEOs who were interviewed as part of the report “A New Era of Sustainability—UN Global Compact-Accenture CEO Study 2010”. According to this report, 96% of CEOs across the globe believe that sustainability should be integrated with operations. In fact, the CEOs in the Accenture report view the coming decade as one which “could usher in a new era where sustainability issues are fully integrated into all areas of business and market forces are truly aligned with sustainability outcomes.” B U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 2
  • 3. T H E G R E E N A D vA N TA G EA N A T I O N A L S U S T A I N A B I L I T Y P R A C T I C E G R O U P P U B L I C AT I O NIN THE PUBLIC EYE AND IN THE BANkPublic perception is more important than ever to businesses finally emerging from a devastatingrecession that also saw many major companies suffer public image losses almost as significant as theirfinancial ones. So it is not surprising that strengthening brand, trust and reputation was cited as thestrongest motivator of their sustainability undertakings by 72 percent of respondents to the Accenturestudy. In addition to repairing public image, a company’s approach to issues of climate change and socialresponsibility is being recognized as a key driver to attract and retain talented employees; and businessesthat locate in efficient office towers experience reduced absenteeism and turnover. The chart belowhighlights some key factors that drive occupancy decisions.These businesses also, according to the Green Value study developed by Cushman & Wakefield’sValuation Group, report significantly lower energy costs, and overall operating cost reductions ofanywhere from 25 to 50 percent compared to conventional buildings.In another examination two years ago of new downtown Class “A” buildings in Toronto, Cushman& Wakefield found that new buildings that were being designed to achieve Leadership in Energy andEnvironmental Design (LEED) Green Building status were projecting lower operating costs than theirolder counterparts. With further in-depth analysis and modelling, it was determined that the loweroperating costs were directly attributable to the LEED components of the buildings.Cushman & Wakefield determined that these buildings, by aiming for LEED certification, wouldprovide optimal energy performance through reduced energy consumption including: lower lightingB U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 3
  • 4. T H E G R E E N A D vA N TA G EA N A T I O N A L S U S T A I N A B I L I T Y P R A C T I C E G R O U P P U B L I C AT I O Nlevels, sustainable material selection, highly controllable lighting and temperature, state-of-the-artelectrical and mechanical equipment and EnergyStar appliances. Water use reduction would also providesavings through recapture techniques and low-flow faucets, toilet and urinals.With the mounting evidence of such results, businesses are increasingly recognizing that the operating andhuman capital costs savings generated by locating in “green space” are both real and worth investing in.OvERvIEW OF SURvEY RESULTSThis is the first year for the Cushman & Wakefield Landlord Sustainability Survey, a non-scientificsurvey of significant Canadian landlords to gauge both current practice of and attitudes towardsustainable practices in commercial real estate. Respondents to this survey came from the executive suitesof Canadian landlords of both small (up to 2 million square feet) and large (2 million square feet ormore) real estate holdings in all asset classes.Although the sample size was small, Cushman & Wakefield believes the results of the survey accuratelycapture the trends and attitudes of the community as a whole, as they confirm our observations based onour interactions with tenants, landlords, developers and investors over the course of the past several years.Cushman & Wakefield intends to conduct this survey annually so that we can report on trends and theevolution of sustainability within the commercial real estate industry.This inaugural survey revealed interesting results that point to where sustainability issues are headed inCanadian commercial real estate, what is driving them there, and what may be holding them back.• 1.7% of respondents said that their firms were pursuing sustainability initiatives addressing 9 environmental, social or governance issues. But only 50% ranked themselves as an 8 or 9 on a scale of 1-10, where 10 indicates a high level of knowledge and expertise concerning the application of sustainability principles to commercial real estate—no respondents ranked themselves as a 10.• ffsetting their lack of internal expertise, 60% of respondents had hired engineers to assist with their O sustainability related efforts, 60% had hired architects, 46.7% had hired sustainability consultants, and only 13.3% had not enlisted any external expertise.• 0% of respondents said that having sustainable or green features had a positive impact on both 5 gross rental rates and vacancy rates, but 21.4% disagreed, saying these things had no impact. The remainder, 28.6%, were unsure.• 3.3% of landlords who have holdings across Canada said they experienced different demand levels 3 for sustainable or green features from tenants based on region and 18.2% said demand levels varied between suburban and urban properties.• nly 18.8% of landlords said their companies had previously produced a Corporate Social O Responsibility (CSR) or sustainability report, although 40% said they plan to publish a CSR or sustainability report for either the 2010 or 2011 fiscal year.B U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 4
  • 5. T H E G R E E N A D vA N TA G EA N A T I O N A L S U S T A I N A B I L I T Y P R A C T I C E G R O U P P U B L I C AT I O N• 8.5% of respondents felt that eco-labelling certifications such as LEED and BOMA BESt 7 would be more or much more important to their company’s success over the next 5 years. No respondents felt it would become less important.• 7.1% of respondents believed that LEED would become the leading standard against which 5 commercial properties will be measured in the future.• 8.6% of respondents currently measure their carbon emissions, but only 14.3% have set carbon 2 emissions reductions targets and only 7.1% make those targets and/or results publicly available.• 8.6% of respondents had used REALpac’s Green Lease guide or something similar to structure 2 leases; 80% said they would consider using green leases in the future.• 1.4% of respondents estimated their sustainability related capital expenditures over the next 7 five years would represent 1-25% of their total portfolio capital expenditures.Interestingly, over 40% of landlords surveyed believe that they will receive a greater than 10%internal rate of return on sustainability related investments.B U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 5
  • 6. T H E G R E E N A D vA N TA G EA N A T I O N A L S U S T A I N A B I L I T Y P R A C T I C E G R O U P P U B L I C AT I O NANALYSIS OF SURvEY RESULTSIt seems clear that landlords are anticipating changes in the industry with respect to sustainabilityover the next few years—based on their self-reported current practices and attitudes, it is alsoclear that these changes will need to be significant if they wish to meet the growing sustainabilitydemands of the marketplace.Most landlords currently report that they lack the C-suite or on-staff knowledge required to pursue sustainability initiatives. With 46.7% of respondents saying that they had engaged sustainabilityconsultants in the past year, while 60% had retained architects and engineers for assistance withsustainability-related efforts, as a group, landlords seem to be just beginning to recognize and makeuse of the external expertise that is available to them. Still, these responses can be construed as anindication that those who recognize the limits of their own expertise are taking steps to close theknowledge gap within their businesses.Meanwhile, despite recognizing the changes ahead—from the increasing use of green leases and eco-labelling to legislated public reporting—and starting to take steps in the right direction, mostremain unconvinced that sustainability issues are really that important to their business.According to the survey results, there are more landlords engaging in some form of sustainableundertaking and using these initiatives to market their properties than actually believe theseinitiatives are having a positive impact on vacancy or rental rates. This suggests that many of thosewho are “going green” are doing it because they know that to do so is becoming table stakes, butthey still aren’t entirely convinced of the benefits to their bottom line, beyond putting them on alevel playing field with everyone else who is doing the same thing.This is likely to change. Although just 40% of landlords surveyed believed that sustainabilityissues within their portfolios will be important to the future performance of their companies, 93%of CEOs in the Accenture report stated that they believed sustainability issues would be criticalto the future success of their business—based on this, it would seem that approximately 50%of companies in the future are going to be challenged to find spaces that meet their corporatesustainability standards. There is clearly a disconnect between CEOs looking to rent space andthe landlords with the space to rent to them, and those landlords willing to make the knowledgeand capital investments necessary to close that gap will find they have an advantage over theircompetitors—an advantage that will have a positive impact on their bottom line and finallyconvince them of the importance of sustainability to their business.Those landlords who choose not to engage in sustainable initiatives may find it difficult to securequality tenants for their properties—marquee tenants are looking for marquee-worthy buildings,as evidenced by Fortune 500 multinational PepsiCo’s decision in 2010 to sign on as the leadtenant at AeroCentre V in Mississauga, Ontario. Owned by the Healthcare of Ontario Pension Plan, AeroCentre V features advanced building technologies such as under-floor air distribution toimprove air quality and full height floor-to-ceiling vision glass to allow for natural light, featuresB U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 6
  • 7. T H E G R E E N A D vA N TA G EA N A T I O N A L S U S T A I N A B I L I T Y P R A C T I C E G R O U P P U B L I C AT I O Nwhich improve occupant comfort, health and productivity. AeroCentre V also requires less thanhalf of the energy consumed by traditional office buildings in North America, something that wascritical to PepsiCo, whose environmental commitment features prominently on its public websiteand in its investor relations materials.57% of landlords surveyed said that they believe government legislation to mandate standardizedpublic disclosure of commercial building energy efficiency is less than four years away, with 35.7%expecting to see it in the next 2-3 years. Whether a company’s sustainability practices are self-reported or transparency is mandated by legislation—or enforced by a global network of Internet-enabled, self-appointed public watchdogs—they will be subjected to scrutiny, and real estatepractices that don’t align with stated sustainability objectives will undermine both credibility andbrand.Inevitably, as a combination of market forces and legislation continue to push in this direction,landlords will be left with no choice but to make sustainability a part of what they offer—eventually everyone will “go green”, even if they are doing the right thing for the wrong reasons.B U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 7
  • 8. T H E G R E E N A D vA N TA G EA N A T I O N A L S U S T A I N A B I L I T Y P R A C T I C E G R O U P P U B L I C AT I O N ABOUT CUSHMAN & WAKEFIELD’S SUSTAINABILITY PRACTICE GROUP Cushman & Wakefield’s National Sustainability Practice For more information, please contact: Group is comprised of industry thought-leaders in commercial real estate sustainability initiatives, whose Pierre Bergevin objectives are to develop and lead the implementation President & CEO of programs, tools and best practices that promote 33 Yonge Street, Suite 1000 Toronto, ON, m5E 1S9 Canada improved environmental performance. We aim to enhance (416) 359-2372 environmental efficiencies in building planning, developing, pierre.bergevin@ca.cushwake.com operating and maintaining, to help our clients’ bottom line and increase property value and tenant satisfaction. As the world leader in real estate services, C&W provides clients with the highest-quality services. Adding our sustainability expertise to our service platform we are able to support our clients’ social responsibility goals while helping to minimize impact of business practices and operations on the environment. Cushman & Wakefield is known the Cushman & Wakefield is the world’s Published by Corporate world-over as an industry knowledge leader. largest privately-held commercial real estate Communications. For more market Through the delivery of timely, accurate, services firm. Founded in 1917, it has 230 intelligence and research reports, high-quality research reports on the leading offices in 60 countries and more than visit Cushman & Wakefield’s trends, markets around the world and 13,000 employees. The firm represents a Knowledge Center at business issues of the day, we aim to assist diverse customer base ranging from small www.cushmanwakefield.com our clients in making property decisions businesses to Fortune 500 companies. It that meet their objectives and enhance their offers a complete range of services within competitive position. five primary disciplines: Transaction Services, © 2011 Cushman & Wakefield Ltd. including tenant and landlord representation All rights reserved. In addition to producing regular reports in office, industrial and retail real estate; such as global rankings and local quarterly Capital Markets, including property sales, Cushman & Wakefield Ltd., updates available on a regular basis, investment management, investment banking, Brokerage Cushman & Wakefield also provides debt and equity financing; Client Solutions, 33 Yonge Street, Suite 1000 customized studies to meet specific including integrated real estate strategies for Toronto, Ontario M5E 1S9 information needs of owners, occupiers large corporations and property owners, Tel (416) 862-0611 and investors. Consulting Services, including business www.cushmanwakefield.com and real estate consulting; and Valuation & Advisory, including appraisals, highest and best use analysis, dispute resolution and litigation support, along with specialized expertise in various industry sectors. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at This report has been prepared solely for information purposes. It It does not purport to be a complete description of the markets or This report has been prepared solely for information purposes. does not purport to be a complete description of the markets or develop- www.cushmanwakefield.com ments containedcontained in thisThe information on which this which thisbased has based obtained from sources we believe to believe to be developments in this material. material. The information on report is report is been has been obtained from sources we be reliable, but we have not independently verified such information and we do not guaranteenot guarantee that the information is accurate or complete. reliable, but we have not independently verified such information and we do that the information is accurate or complete.B U S I N E S S B R I E FI N G | W I N T E R ‘ 1 1 8

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