Tenant demand propels sustainable measures

More data-oriented health and wellness measures promise competitive advantage
Tuesday, May 5, 2015
By Rebecca Melnyk

The more human aspect of sustainability was the focus of a recent discussion on tenant demands for green space, at Toronto’s Green Real Estate Conference on April 23, 2015.

A panel, moderated by Derek Billsman, director of strategic initiatives at Morgaurd Investments Limited, examined the expectation for green features in commercial assets and what landlords and owners need to know in order to support requests from tenants.

One trend on the horizon, shaping the competitive edge of buildings, is the Wellness Standard that has been sweeping across the United States. A focus of that morning’s keynote speech, the standard is expected to become more prevalent across Canada in the coming year.

Health and wellness adoption

“What we’re seeing is a shift from the energy and climate change component to health and wellness and productivity in tenants,” said James McNeil, managing principal and broker of record for JJMcNeil Commercial Inc. “What we’re witnessing is that tenants are really starting to demand that.”

Peter Costa, senior director of asset management at GWL Realty Advisors Inc., sees tenants and landlords becoming more sophisticated as competition for space escalates.

About nine million square feet of new space could be added to the downtown Toronto core in the next two years, he said. Harnessing the wellbeing factor to meet the challenges of leasing such space could prompt major adoption of the Wellness Standard.

“The more you can deliver, the more comfortable the space is for the tenant; you can market it that way,” he said.

Yet, despite the fact that sustainability equals good business, interest seems to vary among asset classes. Lisa Borsook, executive partner at WeirFoulds LLP, who deals primarily with retail, mixed-use and industrial buildings, doesn’t see as much interest in sustainability when dealing with paperwork, whether from landlords or tenants.

“This raises the question whether the interest in greening of new and existing buildings is limited largely to office buildings,” she suggested. “Less significant in other assets.”

From a retail perspective, health extends to the customer experience, yet is still not a top concern among this asset class, despite retailers’ consistent self-comparison to one another.

“The retail environment is challenging right now,” Borsook noted. “You’re not seeing the kind of accelerated store openings from American or foreign corporations that you did see.”

Instead of sustainability, she notices retailers focusing more on attracting internet customers, as delivery costs grow more prohibitive.

“Shopping centre owners are looking for ways to use their centres as depots for internet service providers,” she said. “That will impact green initiatives and sustainability; however, the focus is more on getting people away from computers.”

McNeil added that the wellness trend is something worth watching as a marker of success. Still, such concepts are more difficult to measure, unlike energy and water consumption.

Measuring green trends 

“What we need to see is data on the less obvious benefits of being a green building,” said Borsook. Improved competitiveness, better employee retention figures, worker productivity and attracting new talent are a few less data-oriented factors that tenants want to see when making decisions on the amount of money they are prepared to spend on green building space.

“I don’t think we’re at a place yet where we can accurately measure those kinds of benefits that my tenants are looking for,” she added. Her tenants, who are paying for the privilege of being in a green building, are asking for operating cost clauses and provisions which entitle them to audit and ensure landlords are living up to expectations.

David Hewitt, director of professional services at Brookfield Global Integrated Solutions Canada, mentioned one trend he’s noticed in the last two years among Brookfield tenants is they’re looking to impact their carbon footprint in a simple way.

“We see these tenants move to more sophisticated work styles,” he said “They’re changing the way they use office space, trying to reduce paper, trying to promote more mobile work styles, so people can work from different locations.”

As data evolves and analysts find new ways to make sense of it, Hewitt suggests effective property management reflects what can be measured at the moment; namely, that if a building is conducive to good health, if the temperature and humidity are within the right ranges and customer service is upheld, these factors help navigate tenant demand.

“If the building is well managed and maintains those right parameters and service calls stay low,” he said, “that’s the best measure we have right now.”


Rebecca Melnyk is online editor of Canadian Property Management and Building Strategies & Sustainability