Big benefits enjoyed by owners and occupiers of sustainable commercial buildings

Reduced operating expenses, increased productivity, better staff retention and fulfilling ESG obligations mean modern, sustainable commercial buildings have the edge over others.

Organisations the world over are increasingly concerned with sustainability. Most now have some form of Environmental, Social and Governance (ESG) targets they need to meet, whether enforced by regulation or as part of a voluntary commitment to corporate responsibility. Corporate ESG budgets are also increasing rapidly, and a report from PWC suggests ESG-focused investments will double within the next four years.

“Asset managers globally are expected to increase their ESG-related assets under management from US$18.4tn in 2021, to US$33.9tn by 2026.”
PWC – October 2022

That focus is feeding directly into real estate, where modern, efficient, sustainable commercial properties are proving easier to lease and sell. They’re also providing greater returns and lower risks as building occupants reap the benefits of increased efficiency, staff productivity and retention, and the ability to meet their ESG obligations.

When a purchaser is investigating the viability of a property, sustainability should be a key part of that consideration. The technical due diligence (TDD) process needs to assess a building’s sustainability alongside its construction, condition and legal and statutory compliance.

Why does a building’s sustainability matter?

Businesses have a corporate social responsibility to do no harm, and having sustainable properties is a fundamental part of that. But there are also direct financial benefits to the owners and occupiers of sustainable buildings.

Studies have shown that in Auckland’s CBD, the percentage vacancy rates for Greenstar rated buildings is lower than non-rated buildings, as occupiers tend towards higher quality, more efficient spaces. Sustainable buildings are more efficient to run with lower operating costs. Healthy buildings contribute to a healthy workforce, which studies have shown to increase productivity and staff retention.

How do you make sure you’re investing in a sustainable building?

New Zealand’s building stock varies greatly, from 5 Green Star rated modern CBD offices to the sub-prime, 50-year-old out-of-town assets. Unfortunately, beyond the city centres there appears to be more of the latter than the former, so finding and investing in sustainable buildings can be tricky.

While a high Green Star rating or NABERSNZ score is appealing, there’s more to sustainability than that, and the lack of a rating doesn’t exclude a building from being considered sustainable in the future.

Sustainability considerations in building surveys

When we’re considering sustainability in our TDD reporting, we look at the key ESG factors below to give you a high-level overview of the building’s sustainability performance.

Energy efficiency

Energy usage is a hot topic, with net zero carbon certification currently being pursued by many organisations. The government also recently announced that NABERSNZ ratings (a system for rating the energy efficiency of office buildings) will be mandated on many commercial buildings by the end of 2024. It’s possible NZ will follow the lead of countries like the UK in setting a minimum standard and making it unlawful to transact on buildings that perform below it.

Owners and investors who move early on improving their buildings’ energy performance will have a head start on the market. But improving an existing building’s energy efficiency can be more complex than it first seems, so having experienced advisors who can do detailed cost/benefit analyses is crucial.

Water use

Understanding a building’s approach to water – its use, re-use, harvesting and recycling – is all critical to improving its sustainability. Your building survey should identify any current water saving installations and advise on the opportunity for improvements through techniques such as low flow sanitary facilities, stormwater and grey water harvesting and sub-metering. Much like energy, saving water has a direct impact on operational expenditure.

Biodiversity

Biodiversity is a subject close to our hearts in New Zealand, where the native flora and fauna are unique. When you’re buying a building, its location in respect to sensitive biological habitats will impact the restrictions and opportunities related to its ownership.

Other biodiversity considerations for a building include design aspects such as green roofs and green walls. These can be retrofitted, subject to structural assessments, and also provide additional insulation values which can contribute to conservation of energy with a direct cost benefit.

Sustainable planting, use of native species and provision of beehives and nesting boxes not only enhance biodiversity but also improve a property’s general amenity, making them more attractive to tenants and their workforces.

Wellbeing & accessibility

The wellbeing and accessibility aspects of a property can greatly enhance the amenity of the people using it. A healthy building contributes to a healthy workforce, which in turn increases productivity.

“Productivity benefits from doubling ventilation rates are US$6,500 per person per year.”
Harvard study, 2017

A recent Harvard study found that increased ventilation improved workers’ cognitive function to the tune of US$6,500 per person per year. “Green” buildings with improved ventilation boasted a staggering 101% improvement in workers’ cognitive function.

Providing facilities beyond the traditional work environment such as cafes, gyms, cycle hubs and multi-use events spaces can also have big benefits in terms of staff attraction, retention and productivity. Creating a sense of ‘place’ in this way can be done to existing buildings as well as new buildings, and although they require investment, have a direct benefit in attracting and retaining tenants.

Certification & management

There are 57 different types of sustainable building certifications listed by the World Green Building Council, so it’s important to understand what each certification means and how to retain it. For example, any future works on a green certified building – refurbishments, tenant fitouts and maintenance – will need to be undertaken in accordance with the green accreditations in order to retain them.

Many green building certifications have refurbishment or existing building options, so there will always be an option to enhance your existing asset by gaining green building certification. But it’s vital for investors to understand the financial and administrative burden of doing so.

As the world moves towards the Paris Climate Agreement target to limit global warming, New Zealand’s focus on making our property sustainable will only increase. For investors who are keen to get ahead of the market, there is significant value to be realised in considering sustainability at the technical due diligence stage.

Author: Ollie Cottam – Associate, Commercial Building Surveying + Senior Project Manager

At Prendos, adding value to your assets is our number one priority. We have the skills and experience to guide you through the future challenges posed by ESG and sustainable buildings, ensuring you maximise the value of your investments.