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Greening your building – a competitive imperative

Air conditioning: a valid comparison
Sandy McNair, president of Altus InSite (the commercial real estate industry’s primary provider of national office market data and perspective), probably explained today’s situation most succinctly by comparing green buildings to the advent of air conditioning.

“In 1959, no office buildings had air conditioning,” he explains. “In 1962, the technology had stabilized enough that you could put air conditioning in new buildings and were also able to retrofit existing buildings. The predominant view of the landlord community was ‘it’s really expensive, my tenants won’t pay for it, I’m ok I don’t need to do anything.’ But the new buildings were getting air conditioning.”

What happened? A short five years later things had changed, 70 per cent of existing stock had been retrofitted with air conditioning, and the 30 per cent that hadn’t installed air conditioning had a huge vacancy problem, a rental rate problem, and essentially they were obsolete.

“As a firm that’s got a focus on appraisal work, and for many in the room who have performance pay tied to valuation activity, it’s not a small issue for us,” says McNair. “There’s not a lot of time spent on what the obsolescence factor is on the existing stock but it’s a huge issue. And again, looking back at 1967, the 30 per cent that wasn’t air conditioned had nice elevators, a pretty lobby and were well located. Air coniditioning was the difference.

“Now, in 2008 with sustainable or green buildings, it feels a lot like we back somewhere in the ‘60s. I don’t know if we’re in 1959, 1962 or 1964, but there is a 1967 coming up for all of us where it’s going to be clear that either you did or didn’t do the right thing.”

McNair stresses that when this change happens, it’s going to happen much faster than anyone ever thought it would, and those that don’t act will face a valuation problem.

Productivity and retention benefits
And Altus InSite’s research bears out the fact that employees are ready to make a change in the interest of the environment. In a recent study, the company asked respondents, ‘if you were invited to make your building three degrees warmer in the summer and three degrees cooler in the winter, would you be up for that?’ Respondents said yes, as long as it’s tied to an environmentally responsible initiative.

“If we’d asked that question two years ago, the answer was no bloody way,” says McNair. Through the study, it was clear that employees would entertain a number of changes if it is tied to being environmentally responsible. For instance, 72 per cent would consider being greener at home if their office environment was greener.

Taking your building green affects change because the best way employees can determine that their employers are environmentally responsible is through building attributes.

And CEO’s can expect returns in two critical areas – productivity and turnover. The Altus study suggests a 39 per cent bump in productivity if an employee perceives his employer to be environmentally responsible. And 48 per cent say they’ll stay with a firm longer if it was perceived as environmentally friendly. To take it to the extreme, the study also asked if a person would be willing to be paid less to work for such a firm – 25 per cent said yes, they would be willing to have that conversation.

“This isn’t just casual stuff,” stresses McNair. “This is CEO-level stuff. That’s where the rubber hits the road, and going forward our industry is going to want to provide leadership.”

As the price of electricity rises – and McNair sees it rising soon, and by a lot – tenants are going to start asking, ‘where is your building on the energy efficiency issue?’

The technology is here today to make these buildings a reality. Leadership by building owners – whether your company occupies the whole building or leases space – is required to make the shift happen. Companies who move quickly now will be much better armed to face the coming energy crunch.