How to get ahead in property
The buildings sector accounts for 40% of CO2 emissions. But laws and customer demands are changing, and businesses that adapt early will come out on top
Businesses are focusing much of their CSR effort on green issues. In the UK, Marks & Spencer, among others, has committed to becoming carbon neutral within the next five years.
Cynics may ask whether this is driven by genuine concern for climate change or simply trying to curry favour by being seen as one of the good guys. In fact, that matters little if both business and the environment are winners.
So, what does this mean for businesses who own or lease commercial property?
European Commission research has indicated that, by improving energy efficiency, carbon emissions from buildings could be reduced by 22% (commercial or residential). Buildings are major consumers of energy. Around 40% of final energy consumption in the European Community and US is in the buildings sector, most of which is residential. This means that the property sector has to adapt if the EU is to meet its climate change objectives under the Kyoto Protocol commitments as well as improve the energy performance of new and existing buildings.
Sustainable housing is being discussed widely – energy performance certificates are now mandatory in the residential sector. And commercial property is also affected by environmental regulations. Already, the latest amendments to Part L of the Building Regulations (2006) specify that new buildings must conform to much higher energy-efficiency standards than previously. But 75% of the existing stock comprises existing pre-1960 buildings that are not energy efficient. There are nonetheless things that can be done.
The EU Energy Performance of Buildings directive, soon to be implemented here, applies to all properties with a total floor space of more than 1,000m2, new and old, and will reveal the energy efficiency of a building to a potential tenant or owner.
Landlords could save themselves unplanned future capital expenditure if they begin to allow for and implement requirements early and gradually. But there will always be some landlords who will only make changes when either they are required to do so by law, or when the market for tenants becomes competitive.
If tenants are demanding greener buildings, landlords will comply, as it will improve the marketability of the building, enabling them to recover the costs through service charges, higher rents or simply shorter void periods. Surveys are already claiming that property occupiers may be prepared to pay a higher rent for greener buildings. This may be true for larger blue-chip companies looking to fulfil on their CSR policy. But, for smaller businesses, it will be less of a priority. Consequently, the European Commission’s Action Plan on Energy Efficiency (2000) indicated the need for specific measures in the building sector. In response, the European Commission (EC) published the proposed Directive on The Energy Performance of Buildings in May 2001.
The principal objectives of the directive are:
- To promote the improvement of the energy performance of buildings within the EU through cost-effective measures
- To promote the convergence of building standards towards those of member states which already have ambitious levels
There is quite a lot that property owners and occupiers can do to make their buildings greener, although some improvements may need the landlord’s permission. But why should businesses take the trouble to be green when they generally only have a relatively short-term interest in a property and have other business objectives that provide a greater return on their investment?
It is true that the business case for sustainability in the absence of tax or other penalty legislation is not there for businesses with only a short-term interest in property. Generally, unless the business has a longer-term interest in a building, refitting is the landlord’s responsibility.
A recent report from The Royal Institute of Chartered Surveyors, Transforming Existing Buildings – The Green Challenge, has listed a number of actions it wants the government to take in relation to the impact of buildings and the environment. These include reducing VAT from 17.5% to 5% on retrofit and refurbishment to make it cheaper to make changes for buildings.
Developers will only build commercial property in a sustainable way if it is going to make it easier to let, and currently there is little proof that there is any financial benefit for occupiers to take the lead when they hold a short-term lease. But there are some potential economic drivers for a business behaving in a more sustainable way – although the chief advantage to a company is demonstrating its CSR credentials.
There are potential economic drivers for a business in becoming environmentally aware, however. Firstly, because there are costs involved in becoming sustainable, energy and other increases may be contained or decreased as a result. Secondly, many employees like to work for companies that are making real efforts to be sustainable, so such policies may well help to attract and keep better employees – and give the latter more work satisfaction and productivity in the process.
There are some immediate and relatively low-cost actions that many businesses can take:
- Location: Ultimately good locations will reduce employee attrition because they will reduce their travel costs – both in terms of time and money. Well located properties are those on public-transport routes or, better still, hubs reduce the need for car travel. Bicycle racks may encourage employees to cycle to work rather than drive, and installation of showers may also encourage them to walk or cycle
- Utilisation: Probably the most significant way a business can improve its carbon footprint and sustainability is to have strategies in place to optimise its use of space. Effective use of space in terms of space held per business, and use of desks per person will have the biggest immediate impact
- Design: Good design in the external landscape, base building and interiors will improve sustainability, whether it includes recycled using materials, processes or power-saving equipment
- Flexibility: Ensure the building is as flexible as possible so that it can be reconfigured to changing business needs, with minimal alterations to the internal layout
- Office IT: Flexible working arrangements and flexible IT solutions may reduce the need for expensive infrastructure, and reduce the need to be in the office to work
- Air conditioning: This is often the greatest consumer of water in a building, and enormously energy hungry. But, in city centre locations, a modern, well maintained and managed air-conditioning system will ultimately improve the sustainability of a building by allowing higher optimum densities of occupation and greater productivity
- Heating: Install a system that allows for local heating controls, and use it as required with heat shields positioned to radiate heat back into the room not heat brickwork
- Lighting: Install movement sensitive/auto off and low-energy lighting in appropriate areas and use smaller circuits which automatically turn off when they are not needed
- Energy purchasing: Purchase energy from a renewable energy source, for example Scottish Hydro
- Water: Having single taps that turn themselves off, for example, can help save water, as do dual- or low-flush toilets and waterless urinal systems. Developers are looking at rainwater harvesting and grey-water recycling to improve their credentials
- Equipment: Turn off computers, at the end of each day rather than leave on stand-by
- Recycling: All occupants can play their part in recycling schemes, including, of course, industrial waste. An EU directive – the EU Waste Electrical and Electronic Directive already requires retailers to recycle 6M tonnes of waste equipment each year rather than let it go to landfill
The challenge in making commercial property sustainable is to match long-term benefits of sustainability with short-term costs and needs and in this property occupiers’ demands will stimulate the process. There is no doubt that these demands will gather pace, particularly as legislation and customer requirements come into force. The companies that will lead the field are those that assess the social, political, legislative climate early and start to make changes in their own time – making their companies healthier and happier environments to work in – before they are imposed from outside.