How is the wellness trend impacting commercial real estate?
Improving occupational wellbeing and social responsibility can help attract the best tenants and boost their bottom line
4 minutes to read
As commercial real estate markets undergo significant structural change, the rationale for occupying or investing is being reconstructed and traditional behaviours challenged.
For the occupier, real estate is no longer simply a factor of production, a container in which to house staff or a cost to be managed downwards. Rather, it is a strategic device capable of supporting business transformation and – increasingly – one that can make the difference between a business winning or losing.
For the investor, the very basis of real estate as an asset class is being reconsidered. Increasing lease flexibility has ensured that commercial property is no longer simply a long-term income play. Recognition of the occupier’s strategic intentions repositions them as a customer demanding more from a landlord who, in turn, must now embrace active asset management and think beyond the mere physical supply of space.
The future actions of both occupiers and investors will also be shaped, of course, by wider strategic and societal concerns. Over the course of the next decade, these will be subject to two primary influences – wellbeing and sustainability. As more socially responsible forms of investment emerge in light of the growing climate crisis, and as businesses necessarily take a more proactive and wide-ranging role in the welfare of their staff, new criteria will determine best-in-class real estate for both investor and occupier alike.
Best-in-class performance through wellbeing
The most obvious strategic business agenda item that real estate supports is talent management. Global office markets have seen a clear flight to quality, driven by occupiers seeking to attract and retain staff. This may be an obvious move at a time when labour markets are tight and labour replacement costs so high. Best-in-class working environments are a key tool in corporate talent management strategies, and in keeping that talent healthy and productive.
One notable aspect of this has been the focus on offices rich in amenities that support staff wellbeing, including improved indoor air quality, circadian lighting, healthy food and beverage offers, gyms and fitness classes, cycle storage and maintenance services, and end-of-trip facilities that would grace a high-end spa.
The office environment has increasingly been mobilised to support the physical well-being of those that use it, but there is another well-being frontier that best-in-class (and hence investable) office buildings will need to address going forward: mental well-being. Recent estimates suggest that depression and anxiety alone cost the global economy an estimated US$1 trillion a year in lost productivity. One in four of us is likely to experience mental illness during our working careers and that figure is rising as work becomes ever more demanding.
This frontier will feature heavily in the best office buildings of the future. They will offer direct access to green spaces; to fresh air through the provision of winter gardens and terrace spaces; to sanctuary spaces, such as contemplation rooms, where workers can disconnect from the grid, focus or reconnect with themselves; and to educational events programmes that seek to promote better life and working styles. Over the past year I have presented our latest findings on this growing trend to audiences in a dozen countries and it has been fascinating to see the different reactions. Countries such as Australia and India are at the vanguard of best practice: indeed, my colleagues in India are already working closely with the International WELL Building Institute to support the development of buildings that help users thrive and flourish. Once seen as the domain of the individual, employers are increasingly concerned with – and ready to take responsibility for – employee well-being.
This is not philanthropic: it is an effective way of reducing the financial and operational burden caused by absenteeism or high staff turnover. The office will be the main stage on which these interventions play out. Offices with a range of wellbeing focused amenities will be in greatest demand by occupiers, and subsequently will be the ones to capture the attention of real estate investors.
Best-in-class performance through energy efficiency and sustainability
Amid the growing climate crisis and increasing concern about the environment, the impact of real estate must be carefully managed and mitigated. Thanks to a combination of tighter legislation, compliance requirements and evolving public and corporate expectations, businesses are realising that embracing the transition to a low carbon economy is not just a question of corporate social responsibility, it also makes good business sense.
In June 2019 the UK became the first major economy to pass a net zero emissions law, committing to eliminating greenhouse gas emissions by 2050. To put this into perspective for property owners and managers, this will mean ensuring that buildings and portfolios are compliant over the course of the next two major refurbishment cycles.
The built environment is key to the UK’s drive for energy efficiency, accounting for up to 45% of total carbon emissions (27% from domestic buildings and 18% from non-domestic). Furthermore, between 80% and 90% of the UK’s existing building stock will still be in use in 2050, resulting in considerable focus on improving the energy efficiency of existing buildings. Again, this has commercial logic for the investor and underpins future performance. Indeed, recent research from Radius Data Exchange identified a stepped “premium” – estimated at a 14.3% jump in average rental rates – for London offices offering superior energy performance.
(David Goatman, Head of Sustainability & Energy Consultancy, Knight Frank)