Healthy buildings are moving up the wish lists of institutional investors and office tenants alike. A recent global survey of commercial real estate asset managers finds that COVID-19 has intensified pressure to support physical, social and emotional well-being within the built environment, but that many investors, owners and managers were already embracing healthy building principles ahead of pandemic-triggered challenges.
Survey participants collectively held CAD $7.3 trillion (USD $5.75 trillion) in assets under management (AUM) as of December 2020, with a majority confirming that a multiplicity of drivers — COVID-19; general health; tenant satisfaction; market differentiation; reputational benefits — underpin plans to focus on health and wellness within their portfolios over the coming year. The accompanying joint report from the United Nations Environment Programme Financial Initiative (UNEP FI), the Centre for Active Design (CfAD) and BentallGreenOak (BGO) concludes the growing weight of ESG (environmental, social, governance) criteria in investment decision-making is both the impetus to act and the vehicle to implement and verify health-promoting standards and practices.
“Our fiduciary responsibilities are increasingly taking us into new territory that requires attention to the multitude of social factors that impact asset value,” observes Amy Price, president of BentallGreenOak. “Our collective experience with the first modern pandemic in our lifetimes is teaching us how closely tied investment performance is to operational excellence, tenant engagement and community relationships.”
The report defines healthy buildings as those that are designed, operated and managed in a manner that considers occupants’ health, safety and well-being, offering amenities/services to support active lifestyles and connections to nature. These considerations are linked to the S in ESG — the initial that, to date, has been more intangible and with fewer performance indicators than the environmental or governance pillars.
However, Massachusetts Institute of Technology (MIT) researchers’ pioneering attempt to quantify the value of healthy building certifications, in a study released just last year, suggests there is good reason for investors’ growing interest. The researchers found that, between 2016 and 2020, buildings with healthy building certification commanded rental premiums of 4.4 to 7 per cent, while 46 per cent of owners/managers reported certified spaces leased up more quickly than non-certified premises.
“Healthier workplaces improve employee productivity and retention, and active buildings and communities deliver societal gains that far exceed their costs,” maintains Eric Usher, UNEP FI head. “Certifications that have more recently been developed to measure and quantify the benefits of health and wellness are delivering the key strategic guidance and setting the standards to shift the market toward better and best practices.”
Drawing on healthy building momentum prior to the pandemic, the UNEP FI/CfAD/BGO study explores how the past 14 months may have heightened investors’ and building users’ expectations and accelerated industry adoption. In addition to the survey, the report’s authors gleaned insight from 11 prominent real estate industry executives and/or ESG practitioners including Canadians, Jon Love, chief executive officer of KingSett Capital, and Jamie Gray-Donald, senior vice president, sustainability and environment, health and safety with QuadReal Property Group.
“The pandemic has highlighted the importance of health in real estate and the perils of being unprepared for future events. Both the risks and opportunities provide compelling reasons to develop and implement solutions that uplift our industry,” urges Anna Murray, managing director and global head of ESG at BentallGreenOak.
Demand highest in office sector and from building occupants
As of late 2020, when the survey was conducted, respondents perceive the highest level of demand for healthy buildings within the office sector and emanating from tenants. Overall, 39 per cent of survey participants report strong demand and 50 per cent report moderate demand across all asset types.
Drilling down further, 61 per cent encounter strong demand from office properties, while just 10 per cent do in retail holdings. In fact, nearly three times as many respondents — 29 per cent — encounter no demand from retail properties.
Turning to asset managers’ client groups, 37 per cent of survey respondents report strong demand from tenants versus 24 per cent from investors and 21 per cent from asset owners. One in 10 respondents suggest there is no demand from asset owners, while just three per cent say tenants are uninterested.
The largest share of survey respondents — 58 per cent — are based in North America, from where 45 per cent encounter strong demand and 45 per cent encounter moderate demand for healthy buildings. European-based asset managers report lower levels of enthusiasm, with just 14 per cent seeing strong demand and 71 per cent finding moderate demand. A smaller portion of Asian-based respondents unanimously report interest in healthy buildings, split 50/50 between strong and moderate demand.
The vast majority of respondents — 92 per cent — expect demand will pick up over the next three years. That follows a 12- to 24-month period where 87 per cent had already experienced growing demand.
In response and preparation, 61 per cent of respondents are using some form of building certification system to identify needs, implement measures and track outcomes. However, just 53 per cent have incorporated health and wellness into their ESG frameworks and reporting.
“We expected the findings to demonstrate strong demand for healthy buildings, especially given the pandemic, but it also points out the lack of consistency around measuring and reporting the impacts of these initiatives,” says Joanna Frank, president and chief executive officer of CfAD, which is also the developer of the Fitwel certification system. “There’s a clear case for standardizing benchmarks to track performance.”
At least 50 per cent of survey respondents track a dozen different metrics deemed to be related to health and well-being. Tenant satisfaction surveys are the most commonly accepted evidence of effort — tracked in 79 per cent of cases. Emergency preparedness planning and indoor air quality testing are the next most prevalent indicators, sought by 74 per cent and 68 per cent of respondents respectively.
Other indicators include: proactive planning exercises for pandemics and natural disasters; metrics to gauge supports in the surrounding locale such as Walk Score, Transit Score and access to high-quality outdoor spaces; and measures such as water quality testing and availability of health programming. Fewer than 40 per cent of respondents monitored Bike Score, cleaning audits or access to nutritious food.
Nearly three quarters of survey respondents are GRESB participants, marking it as the most widely adopted ESG assessment program, followed by LEED, which 68 per cent of respondents employ, and Energy Star with 61 per cent uptake. Fitwel emerges as the most common certification scoped specifically to healthy buildings, with 47 per cent of survey respondents on board. Meanwhile, 39 per cent have adopted the WELL Building Standard.
Indicative of Canadian survey participation, BOMA BEST makes a proportionally strong showing with 37 per cent of respondents adhering — notably surpassing the 29 per cent of survey respondents that have adopted the United Kingdom’s BREEAM assessment method. Nevertheless, Usher notes the complementary synergies of all such programs, and reiterates that a bolstered S also has positive ramifications for the E and the G.
“This investor/manager focus on health and wellness nests within a range of other UNEP FI activities such as assessing and communicating the holistic impacts of finance decisions, and steering insurer risk management and underwriting practices in support of the UN’s Sustainable Development Goals,” he says.