Buried in the recent avalanche of green real estate articles, meetings, and organizations are a few vital pieces of information that every corporate real estate and workplace executive must know.
First and foremost: They have to “green” their leased and owned workplaces, their construction and renovation practices, and their day-to-day operations now. Time is against them. Three powerful forces — competitive advantage, employee and shareholder demand, and regulations — have come together and mandated green.
Asked when sustainability would be a critical business issue to Corporate Real Estate, 44 percent of respondents in a joint CoreNet Global and Jones Lang LaSalle international study said that it was already a critical issue, 35 percent said it would be a critical issue within one to two years, and another 11 percent said it would be critical within three years.
Given the amount of time that it takes to plan, design, and complete a new building or renovation, corporate real estate and workplace executives must address green now.
Many are already doing so. In a joint CoreNet Global/Building Design+Construction study, 8 out of 10 CoreNet Global corporate real estate respondents had incorporated some level of sustainable design in their recent new construction and renovation projects, and 32 percent of those respondents had done so “extensively.”
With the many overhead and work force benefits generated green buildings, those companies that do not have green leased and owned workplaces now are at a competitive disadvantage. And the gap is widening.
If they are going to meet their responsibilities to their companies, corporate real estate and workplace executives must understand that green real estate isn’t just important, it must be one of the cornerstones of their decisions, policies, and procedures.
So, what else do you really need to know?
Green Is Bigger Than You Think — Part I
Energy efficiency and a reduced carbon footprint don’t make a building or a corporate campus green. They are important, yes, very important, but they are only two components of a much larger sustainable whole.
Green buildings incorporate design, technology, and construction or renovation practices that significantly lessen their negative impact on the environment through reduced use of natural resources including land, lower energy and water consumption, fewer greenhouse gas emissions, open space preservation, and recycling (rather than dumping) of waste.
They provide healthier indoor environments for their occupants compared to conventional buildings through design and technology choices, as well as the use of green building materials and furnishings, from low- or zero-VOC (Volatile Organic Compound) paints and glues to natural flooring and materials with significant recycled content like acoustic ceiling tiles.
Green Is Bigger Than Buildings
Green real estate is about much more than single buildings, or even business and industrial campuses.
Green real estate is also about taking responsibility for a community’s development patterns, particularly Sprawl, which consumes two acres of farmland a minute in the U.S. Sprawl also gobbles up open space vital to oxygen generation, wildlife habitat, and natural stormwater management — when the frequency and intensity of storms in the U.S. are increasing.
Our Sprawl development pattern — which requires automobile trips for the simplest errand — contributes directly to the energy crisis, the massive consumption of raw materials, greenhouse gas emissions, and global climate change. U.S. commuters are also responsible for generating 1.3 billion tons of carbon dioxide a year.
Where a company locates its workplaces can contribute directly to sprawl. Even a green building can contribute to sprawl if it is not constructed on a truly sustainable site, i.e., infill and brownfield sites within easy walking distance of public transit.
Companies must re-think their locational decisions and address “external mobility” issues that impact both their sustainability and profits. Workers can waste as much energy getting to and from work as a green building saves. Congestion caused by employee commutes to and from work also costs U.S. employers 3.7 billion hours of lost productivity a year and $63.1 billion in wasted time and fuel annually.
Boeing, for example, moved its headquarters several years ago to downtown Chicago. Boeing’s employees have immediate access to a wealth of public transportation options, and a myriad of services and amenities are within walking distance.
Similarly, United Airlines recently moved its headquarters into a green downtown Chicago building.
Pedestrian-oriented suburban locations with good public transportation options also offer many workplace options. Microsoft, for example, moved some of its offices into Redmond Town Center, a sustainable mixed-use development near Seattle. Discovery Communications relocated its 650,000-sq.-ft. (60,386-sq.-m.) headquarters to downtown Silver Spring, Maryland opposite a METRO subway station.
The suburbs also have three “land banks” that companies can redevelop with new green workplaces: dead shopping centers, obsolete corporate campuses, and obsolete business parks.
Many companies, of course, have workplaces in suburban and urban areas with limited or no public transportation. But they are far from helpless, or hopeless.
What’s the solution? Companies can help cities spearhead the development of mass surface transit systems that integrates light rail and dedicated bus lanes. A surface system performs like a subway, but it can be constructed much faster, at much less cost, and serve more passengers. Over 80 cities around the world are constructing surface mass transit systems.
In Seattle, property owners in the redeveloping South Lake Union district funded half the cost of a new $52 million streetcar line that is now connecting their neighborhood to the downtown retail core, upscale residential areas, university and medical centers, and to other light rail, monorail, and bus lines. The Seattle City Council had approved the project in 2005. The streetcar line opened in December 2007. In its first six weeks of operation, the line served more than 100,000 passengers, which was 59,000 more riders than originally projected. While the first three weeks of service were free, which generated greater ridership, the line is still out-performing expectations. It was supposed to serve an average of 950 riders a day. Currently, it is averaging 1,040 riders a day.
Amazon, the Internet retailer, is in negotiations to lease buildings along two blocks of the South Lake Union streetcar line for its 5,000 Seattle-area employees.
If major companies in a city with inadequate transit options throw their weight behind surface mass transit, it will change forever that city’s development patterns, greenhouse gas emissions, and economy for the better.
Conventional Workplaces Are Rapidly Becoming Obsolete
As companies embrace the many benefits of green workplaces, existing conventional buildings are rapidly becoming obsolete and underperforming in the market in lease and occupancy rates and property values. Worse, whether a company owns or leases its workplaces, this looming obsolescence of conventional real estate will impact its competitiveness and bottom line, because it will have higher operating costs, weaker productivity rates, greater absenteeism, and less-than-stellar Corporate Social Responsibility reports compared to its peers.
Companies with conventional workplaces are also less likely to attract and retain talented younger workers who care passionately about environmental issues like global climate change. A November 2007 MonsterTRAK.com poll found that 92 percent of students and entry-level hires are more inclined to work for companies that are environmentally-friendly.
“One of the questions that many potential employees ask us is about how green our workplaces are,” says Randy Knox, the Senior Director of Adobe Systems’ Global Facilities Services.
Companies must green their existing workplaces. “As their leases come up for renewal, our Fortune 500 customers are hiring us to undertake green tenant improvements, and they are asking for that work to be LEED-certified,” says Jack Rizzo, Managing Director, ProLogis Global Construction.
Adobe’s $1.4 million Green Retrofit of the three office towers in its San Jose, California headquarters complex earned LEED-Platinum ratings and cut its electricity consumption by 35 percent, natural gas use by 41 percent, domestic potable water consumption by 22 percent, and landscape irrigation water use by 76 percent. The Green Retrofit boasted a 10.5 month payback, generated a 121 percent ROI, and saves Adobe $1.2 million annually.
Is demolition ever the right choice for company-owned real estate? Yes.
Some post-World War II buildings are unsalvageable. They were constructed at the lowest possible project cost for short-term needs, not long-term durability, and they are hampered by the smallest center cores possible, low ceilings, undersized ducts, poor quality building materials, and obsolete building systems.
Demolition can make way for the construction of a green building that re-uses the site’s infrastructure and recycles much of the construction debris, helping to create a more sustainable built environment over the long-term while bringing a company all of the benefits of a green building.
Demolition also makes sense if an obsolete company-owned building sits on a transit-served property that can be re-developed with a compact mid- or high-rise green building that can replace all of the company’s suburban low-rise corporate campus workplaces.
Global Climate Change is Impacting Real Estate Now
Global climate change is not something that will happen some time in the future. It is happening now, and it is already having a significant impact on companies large and small.
Insured losses from the greater number and severity of hurricanes and floods — along with heat waves, fires, hail storms, crop loss, and disease — have increased 15-fold in the last 30 years, costing insurance companies billions of dollars annually.
Thus, insurance rates are rising significantly, particularly for at-risk workplaces locations. Swiss Re is going further. It is beginning to refuse coverage to those major companies, and their officers and directors, that haven’t implemented programs to significantly reduce their greenhouse gas footprints (and Swiss Re’s risks). Note: Green workplaces significantly lower a company’s greenhouse gas footprint.
Ironically, even with the greater number of storms, global climate change is also causing drought and water scarcity around the world, directly impacting companies that use water in their manufacturing processes and building systems, and companies whose workers are struggling with increasingly higher potable water costs, or lack of potable water. Many regions — like Atlanta, the U.S. Southwest, and Australia — are experiencing prolonged droughts.
Conservation is a vital strategy, one that will soon become mandatory.
Fortunately, green buildings reduce water consumption by 50 percent or more compared to conventional buildings. Green strategies like drought-tolerant landscaping and water-conserving irrigation systems reduce landscape water consumption by at least 50 percent. On-site wastewater treatment and recycling in building and irrigation systems is becoming increasingly necessary.
Global climate change has also generated a growing number of real estate-oriented regulations around the world and, increasingly, in the U.S. Thus far, these regulations have focused primarily on making buildings energy efficient to reduce greenhouse gas emissions.
In Europe, for example, the EU’s Directive on Energy Performance of Buildings (EPBD) sets minimum energy performance standards for new buildings and the renovations of large buildings, and it requires that “Energy Passports” documenting their level of energy efficiency be posted on these buildings.
Japan’s Energy Conservation Law imposes tight restrictions on energy consumption in factories, offices, residences, and other buildings.
In April 2007, the U.S. Supreme Court demanded that the Federal government take action, ruling that, under the Clean Air Act, the EPA must regulate carbon dioxide emissions. As a first step in the right direction, Congress passed the 2007 Energy Independence and Security Act, which established government building energy efficiency standards, among other provisions.
You need to know that, like it or not, the scope of environment-oriented building regulations is going to increase dramatically.
In 2009, EU buildings will be required to display Ecology Certificates which document their overall environmental performance.
In the U.S., cities like Boston and Washington, D.C. are mandating LEED standards for privately owned buildings and renovations. Los Angeles and San Francisco will enact such measures this year. Expect many more cities to follow their lead over the next few years.
California’s AB 32: Global Warming Solutions Act of 2006 commits the state to reducing its greenhouse gas emissions to 1990 levels by 2020 (that’s a 25 percent cut), and to 80 percent below 1990 levels by 2050.
AB 32 incorporates legislation already on the books — including renewable energy and efficiency requirements — with the creation of new regulations that will target, among other things, buildings and development patterns. Where California goes on the environment, other states follow.
Of particular importance, most U.S. corporations are now multi-national companies, with facilities and workers around the world, many in countries with green building regulations. These corporations must adopt a uniform company-wide green construction and renovation standard that can then be adjusted to meet local requirements.
Green Real Estate Trends
Corporate real estate and workplace executives also need to know about the current green real estate trends that will directly affect them, their buildings, and their companies in the near future.
Trend #1: A Green Retrofit/Renovation Boom. “There are far more existing buildings in the U.S. than new building being constructed, basically a 99-to-1 ratio,” says Rick Fedrizzi of the USGBC. “Green will probably comprise 80 percent to 90 percent of the renovation/redevelopment market.”
Trend #2: New Workplace Locations of Choice. Companies will begin selecting transit-oriented sites for new development, and buildings in pedestrian-friendly transit-oriented urban and suburban districts, to reduce their greenhouse gas emissions through external mobility and to improve their work force’s productivity.
Smart companies will also move away from areas severely impacted by global climate change, including coastal cities prone to hurricanes and rising sea levels and cities with extreme temperatures, like Phoenix, Arizona, whose average temperature has already risen five degrees since the 1960s. Some experts predict that Phoenix’s average temperature will rise another 15 to 20 degrees over the next generation, because of the urban heat island effect. Summer temperatures regularly hit 110 degrees now.
Trend #3: Biophilia. The human biological need to interact with and be closely connected to nature — and the greater physical and emotional health (and hence productivity) those interactions and connections engender — will become more and more a part of building design and campus planning.
Trend #4: Biomimicry. This practice doesn’t just mimic nature’s functional processes to create non-toxic materials and products using energy-efficient manufacturing processes that minimize greenhouse gas emissions and waste, it will soon become an integral part of green building construction and renovations. Architects, for example, are learning how to design commercial and other buildings that create fresh water by studying the habits of Namibian beetles near the Atlantic coast who use day-night temperature swings and the warm air blown off the Atlantic Ocean at night to condense fresh water on their cool backs.
Trend #5: Changing and New LEED programs. The USGBC is creating new LEED programs, including LEED for Retail, LEED for Schools, and LEED for Healthcare Facilities.
The USGBC is also beefing up its requirements. All new commercial LEED projects, for example, must reduce their carbon dioxide emissions by 50 percent compared to a conventional building. The USGBC’s third version of its LEED standards will include a Life Cycle Analysis and Bio-Regionalism, i.e., geographic-specific criteria.
Trend #6: More Regulations, Fewer Incentives: The number and scope of green building, energy efficiency, and greenhouse gas emissions regulations will increase dramatically in the next five years. As the number of green building regulations grows, expect green building and energy efficiency incentives to disappear.
Trend #7: Mandatory “Report Cards” for Buildings. Expect U.S. cities, states, and eventually the Federal government to follow in the European Union’s wake in the near future by requiring “Report Cards” for buildings that document their energy efficiency and greenhouse gas emissions. Mandatory green building-based Ecology Certificates should come within the next decade.
Trend #8: Renewable Energy. Renewable energy technologies will become standard features on new and even existing buildings. Photovoltaic systems, in particular, will dominate in the southwestern United States and other areas with a lot of sunshine. Workplaces in urban areas, particularly those with building-created wind tunnels, will be making use of rapidly advancing wind power technologies.
Those companies leasing space in buildings that prohibit the installation of geothermal power supplies, or photovoltaic systems, or rooftop wind turbines, will turn to Renewable Energy Credits — the purchase of power from renewable energy sources rather than fossil fuel sources like coal-fired power plants. PepsiCo is leading the way. The company is purchasing 100 percent of its electricity use with renewable energy credits for all of its U.S. facilities — that’s 1 billion kilowatt hours — at a cost of $2 million.
Constructing/Renovating to Green Building Standards
In 2007, 5,528 buildings registered for or received LEED certification, more than in the seven previous years combined, and a 330 percent jump from the 1,672 buildings that registered for or received LEED certification in 2006.
“Based on the current trajectory of growth, we should see a 50 percent increase every year in the number of new construction buildings that apply for LEED certification,” says S. Richard Fedrizzi, President and CEO of the USGBC. “By 2010, there will be 100,000 commercial buildings that are LEED Registered and Certified.”
In the UK, over 95,000 buildings have already received certification from the BREEAM (Building Research Establishment Environmental Assessment Method) program, and more than 670,000 buildings have been registered for a BREEAM rating.
In Australia, “Every commercial tenant seeking 10,000+ square meters requires five- or six-star Green Star space, the equivalent of LEED-Gold or LEED-Platinum,” says Che Wall, Chair of the World Green Building Council.
Companies can’t just throw a few green or energy-efficient features into their workplaces and hope to get by. They must meet rigorous green building standards, and document their accomplishments, to satisfy their shareholders, workers, public demand, and the growing number of municipal and state green building regulations.
About the Author:
Charles Lockwood is a green real estate authority and consultant. He advises companies on greening their corporate real estate and operations.
