suburban assets

What motivates the greening of suburban assets

Experts envision quality suburban office buildings as mixed-use sustainable solutions
Wednesday, May 27, 2015
Rebecca Melnyk

While greening core real estate in urban locales has been a topic of great interest among those keen to leverage the value of sustainable assets, non-core suburban assets are rapidly becoming part of the conversation.

Such a conversation, which took place at the Green Real Estate Conference in April, looked at the different elements investors consider when they begin to think of sustainable buildings in the suburbs, and how well municipal objectives correspond with such goals.

Tenant demand in the suburbs

In an effort to build brands and attract tenants, there is now a greater push for LEED Gold or Silver in the suburbs, said Dermot Sweeny, principal at Sweeny & Co Architects Inc. What Sweeny has witnessed is a willingness from institutional owners to be part of the solution and not the problem, to spend a little more in the initial building process.

“They want to know that, down the road, the building is going to be less expensive to maintain,” he said. “We also see a push from the last bastion of entrepreneurs in the real estate industry to want to be better, to raise the bar and have not just sustainable, but other issues in the building be first to do something.”

And people are willing to pay higher rents to be in better buildings. Sweeny says the cost of rent is meaningless compared to losing people to healthier and more sustainable buildings. And as tenant mindsets change, interest is growing among long-term investors like pension funds.

“We are starting to see a shift, and as that shift happens where tenants are demanding better, they’re more than willing to pay for it,” he added. “Once tenants establish that these [buildings] are better for human resources, better for productivity and better for human beings, you are going to see a lot more institutional investors move into the suburbs; there’s many now; there will be many in the future.”

What Scott Watson, partner of leasing and marketing for Crown Realty Partners, has noticed among this shift is that it’s less about individual buildings and more of a “portfolio approach” to sustainability: standardizing processes, thinking about driving costs down and what green investments will generate a return.

“For buildings and complexes that do offer a significant advantage to the user, you’re going to see the price spread of rents go up dramatically,” said Watson. “If you’re offering a product similar to the downtown marketplace, people will make the choice as they want to offer better amenities to their employees.”

Watson sees the continuing prevalence of $12 rent buildings across the suburbs, but also foresees Class A rents hitting the mid-$20’s or even $30.

From Watson’s perspective, what drives sustainable change seems to differentiate tenant demand in these two markets. He sees more focus on building systems within the downtown core, with real estate driving decisions, such as achieving LEED Platinum, for example. In the suburbs, such benchmarks are visible in the highest quality products, but other projects have tangible expectations.

“People want to see things they can touch and feel,” said Watson. “Things which give them the sense that the manager is doing everything they can from a sustainability point of view.”

These features comes at a different cost than they would in a downtown tower. For instance, sensors that turn on lights when you leave the room, low-flow toilets and LED lighting.

Shifts in tenant motivations

While more tenants are demanding green suburban assets, sustainable models are still lacking.

“There is a tension between future needs of communities and the current economics and customer demand, and that hasn’t been sorted out yet,” said Doug Webber, associate vice-president of sustainability at Halsall Associates.

Webber expanded on this thought by pointing out the necessity of less car-dependent communities. He noted a recent study on reducing carbon in Cadillac Fairview’s Buttonville Airport redevelopment in Markham, Ontario. Results showed that the average person drives 27 kilometres in Markham. Two-thirds of this time is spent in cars not going to work. What Webber realized that if a walkable, dense urban centre is built, no matter where it is, people can cut two-thirds of their driving time by living in a functional community.

To shift people’s mentality requires building infrastructure around this lifestyle and thinking beyond commercial real estate. For now, Watson emphasizes the change he is witnessing comes from within buildings.

“People don’t react well when someone else tells them to change,” he said “But if they can see change developing within their competitors or the companies within those buildings, that’s where we’re seeing real impacts and shifts.”

Economics also factors into future transformation. Among the average Canadian family, salaries are not keeping pace with inflation and taxes are rising, along with the cost of expenses incurred in the suburbs.

“A family with two cars, working on less income, is trying to keep up,” noted Sweeny. “People are starting to think about change in other ways because they have to; their quality of life is changing dramatically.”

In cities like Mississauga, Sweeny sees sustainable development as a way to alleviate financial burdens that may one day need relief from the province.

“85 per cent of development in Mississauga is one or two storey buildings,” said Sweeny. “You need to intensify, build a tax base. If an industrial warehouse is needed, it should be built below grade, with other amenities above.”

Other options include finding a way to create a lesser land value by placing parking into structure parking and developing residential multi-family projects and more retail.

“We’ve got to start looking at mixed-use and land intensification,” added Sweeny. “I think you’re going to see the most attractive office complexes become part of something much greater.”

He envisions quality buildings that are part of a complex which offers various amenities and, ultimately, housing.

“The world of nine-to-five is changing rapidly,” he said. “People want to walk to work. People want to be able to have more free time. A great opportunity, compared to downtown, is the way in which we can create participation with the public realm and integrate uses in the same complex.”

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

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