Owner Benefits

The sustainable design and operational performance of commercial offices have direct financial implications for property owners. By incorporating sustainability within the fit-out process owners can mitigate risks and maximise value creation opportunities. This can help protect and enhance the medium to long term value of their property portfolios.

1. Meeting Investor Requirements

Legal & General Real Asset’s approach to sustainability was a key factor in PGGM’s decision to select them in their £375m London Office Joint Venture Partnership. Such an example highlights how a property owners approach to sustainability can attract additional investment from real estate investors. More here. 

There is growing investor interest in the Environmental, Social and Governance (ESG) performance associated with their real estate investments, from both financial and CSR perspectives.

To aid understanding and inform investment decision making, investors increasingly seek ESG information. One of the most prominent ESG performance benchmarking initiatives is GRESB. Many investors use it as a proxy for the performance of real estate funds and property companies they invest in.

University of Cambridge's report The Financial Rewards of Sustainability: A Global Performance Study of Real Estate Investment Trusts suggests a positive correlation between how well a commercial property company incorporates ESG policies and management practices into its business operations, and its financial performance. This, coupled with increasing investor appetite for more investment options that have a clear ESG mandate, can help property owners attract capital, as well as secure new mandates and joint venture partnerships.

Sustainable fit-outs can support an owner in demonstrating their ESG credentials and performance to investors as well as improve ratings and scores of industry ESG benchmarking initiatives, such as GRESB. 

“Responsible investment is becoming increasingly important to the hedge fund industry and firms are responding to investor demand by investing in the data and expertise they need in order to accurately measure the social and environmental dimensions of their investments."

AIMA’s CEO Jack Inglis on the launch of From Niche to Mainstream: Responsible Investment and Hedge Funds.

2. Meeting Occupier Demand

CBRE’s 2018 European Occupier Survey highlights: 

  • 92% have preference for buildings capable of supporting wellness initiatives.
  • 80% have or will introduce a wellness programme.
  • 74% expect to provide more collaboration/ social space.

The way in which a space is conditioned, how air is ventilated, how the space is lit, materials used, and access to local amenities and green space can all have a profound effect on occupation. Occupiers are also increasingly concerned about the environmental and social impacts of their business operations. The space a company operates from is intrinsically linked to these aspects. 

 Well considered properties and fit-out solutions can deliver clear Occupier Benefits, including:

  • Improved employee health, wellbeing and productivity.
  • Enhanced employee attraction and retention.
  • Alignment with brand and CSR objectives.
  • Improved environmental and social impact
  • Lower operational costs.
  • Reduced regulatory exposure.

Owners should find that buildings with strong sustainability criteria will be more attractive to both new and existing occupiers.

Of the 1,000 workers asked in British Land's Place People Prefer survey, more than 80% believe that companies that don’t offer their employees a convenient location and attractive features are more likely to lose them, and felt they would be 36% more productive at work if they were working in the ideal office. Moreover, 86% say they’d stay longer with an employer that had the ideal office location and features.

3. Protecting and Enhancing Property Value

With sustainability increasingly seen by occupiers as a standard characteristic of good quality commercial space, there is a growing body of research suggesting that sustainability characteristics of commercial properties can have a positive impact on value through increased letting speeds, longer lease length, higher rental premiums, higher occupancy rates, lower void levels and reduced obsolescence. 

Conversely, failure to meet what are now market norms may also have an adverse effect on the time a property takes to let, lease lengths achieved and the occupier’s enthusiasm to renew.

BCO Office Service Standards & Customer Experience Report highlights the following emerging themes when asking occupiers what was most important to them: 

  1. The front-of-house experience, which should be hotel-level service.
  2. Use of technology to make the experience easier.
  3. More fit-out design flexibility and customisation.
  4. Use of data to drive building efficiency.
  5. Better communication and information about the running of the building.
  6. Sustainability to yield money savings.

4. Reducing Regulatory Risk

The UK Climate Act requires an 80% carbon emissions reduction by 2050. With commercial property responsible for approx. 18% of UK carbon emissions, the industry has seen growth in built environment specific policy and regulation at the EU and UK level. These requirements span reductions in energy use and carbon emissions, as well as climate change resilience.

Key regulations relevant to fit-outs

1. Minimum Energy Efficiency Standards

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Within the Energy Act 2011 and the Energy Efficiency (Private Rented Sector) (England and Wales) 2015 lie powers to make it unlawful to let properties which lie below the minimum energy efficiency standard of an E rating EPC.

This applies to all new leases from 1st April 2018 and all privately rented property within the scope of the regulations by 1st April 2023.

Alterations, improvement works and fit-outs can potentially have a significant impact on the EPC rating of a building/unit which in turn could have a negative impact on the property’s value. Implementing processes to ensure the occupier has considered this risk and incorporated sustainability considerations into their fit-out will help mitigate this risk.

In Scotland, the 2016 Assessment of Energy Performance of Non-Domestic Buildings Regulations introduces requirements on building owners for both the assessment, and the improvement, of the emissions and energy performance of non-domestic buildings. This pegs minimum performance to buildings constructed to 2002 building standards or later, and only applies to buildings with a floor area of more than 1,000 square metres.

2. Building Regulations

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From 1st October 2008, all non-domestic buildings in construction, sale and rent require a Non-Domestic Energy Performance Certificate (NDEPC) and a Recommendation Report (RR). This information helps owners and occupiers make their building more energy efficient and allows potential buyers and tenants to compare the energy performance of different buildings.

For buildings sold or let before the first full fit-out takes place (i.e. shell and core), the owner is required to produce an EPC based on reasonable assumptions with regards to efficiencies and types of HVAC and lighting plant. At the end of the fit-out works, the occupier produces the ‘As Built’ EPC, which reflects the space as fitted out and supersedes the ‘shell and core’ EPC.

The Non-domestic Building Services Compliance Guide sets out recommended minimum energy efficiency standards for components of building services systems. The Guide covers systems installed in new buildings, and for new or replacement systems and components installed in existing buildings.

3. Wider Sustainability Regulations

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Whilst not directly related, fit-out design and performance could also have an impact on wider sustainability regulations where commercial property owners need to have appropriate management practices in place to mitigate the associated risks and costs.

Wider regulations that should be considered include:

Aberdeen Standard Investments has minimised risks relating Minimum Energy Efficiency Standards by taking a strategic approach of reviewing and reassessing EPC ratings across its entire portfolio. It found occupier fit-out can have a significant impact on EPC ratings. On one estate, 44 buildings all built at the same time and to the same specification achieved EPC ratings ranging from C to G, depending on how the occupier had fitted them out. Aberdeen now seeks to reduce this risk using lease terms and tightening the requirements of licenses for alterations. See more here.

FURTHER INFORMATION

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