Flick or click through the pages of any annual report or corporate website and you will find a wealth of evidence to suggest that sustainability has become much more of a priority than it was a decade ago.
No longer just a nebulous catchphrase or a watchword, most landlords and occupiers now have targets, policies and budgets dedicated to being, and being seen to be, more sustainable.
But does that actually mean sustainability, in itself, is actually that high up their agenda? Or is it still just being given lip service?
Last year CBRE asked Kingsley Associates to conduct a survey of tenants in some of the world’s premier office blocks. The survey, which was for internal consumption only, asked the occupiers to rank 15 factors in order of importance. Security, landlord or manager response times and value for money were, understandably ranked at 1,2 and 3. Sustainability was ranked 14th. At number 15 was “other”.
So are companies embracing the green agenda or aren’t they? Richard Williams, managing director of asset services at CBRE, thinks that, despite what the survey implies, most are.
“Some years ago clients were split into those that had some interest, those that had a great deal of interest and those that had none at all,” he says. “Now it is more accurate to say that a third have some interest, a third take medium interest and the final third are very engaged.”
In which case, why is it so low on the list of priorities?
“In a positive market sustainability tends to slip down the importance list,” says Williams. “Clients are busy buying, selling, adding value and while they have an eye to sustainability it has not been at the top of the list.”
And it could just be too confusing, adds Helen Drury, from her perspective as sustainability manager for the British Council of Shopping Centres.
“The results of this survey are not necessarily evidence of inertia in embracing the green agenda but nor are they surprising. We know many people find the sustainability agenda confusing, and not just operationally,” she says.
BNP Paribas Real Estate’s Nick Hillard disagrees. “The response is somewhat surprising and conflicts with what we, as property managers, are seeing on the ground,” he says.
“Whether there is still some confusion as to the terminology around sustainability, we are certainly engaging with tenants and tailoring this message to focus on economic, health and wellbeing and or environmental benefits.”
Whether it is because of higher priorities or confusion, the facts presented by the survey are still the same: when asked to state what their priorities were, tenants did not opt for sustainability.
On the other side of the equation, namely among landlords, sustainability appears to be readily seen as a priority.
Indeed, a survey published by GVA last November found that 94% of UK fund managers and investors have a sustainability policy in place for the properties and funds they manage, and more than half of those questioned said the market was starting to consider sustainability as “a key driver of investment performance”.
“What’s clear is that the majority of fund managers and investors believe the industry is moving away from a simple box-ticking mentality,” says Alastair Mant, head of sustainability at GVA.
“It’s clear that sustainability is no longer being treated as an add-on, but rather considered as best practice, or the norm. We believe as an industry we have moved beyond preaching to convincing and are moving into an era of acceptance and integration.”
But there is still a barrier when trying to persuade landlords to make sustainability a priority.
This is the ‘split-incentive’, where the landlord pays for the implementation of energy efficiency works, but the tenant benefits. “And this barrier is often very difficult to get past,” says David Eynon, senior sustainability advisor at Colliers International.
The problem is that, as typical lease lengths shorten, the ability for energy efficiency works to pay for themselves within the lease term becomes less and less likely. “And the works look increasingly unattractive,” says Eynon.
Williams agrees that this is deterring people from putting their money where their sustainability agenda is. “The more expensive a solution then the longer, generally, the pay-back period, so the landlord or the tenant will not necessarily see the value.”
And many of these initiatives require significant capital expenditure.
“During more difficult economic times, value always climbs up the priority list,” says Mat Lown, sustainability partner at Tuffin Ferraby Taylor. “But companies are increasingly understanding that sustainability and value go hand in hand.”
Williams argues that this is why many landlords and occupiers are looking at low-cost or even no-cost improvements. “For instance, our clients are asking us to record much more data,” he says. “This has increased exponentially over the past three to five years.”
This data, such as energy usage, is used to set a benchmark. “They can then use that to demonstrate improvement, which can take the form of changing the energy supplier, or tweaking the building management system to literally change the on and off times or the temperature by a degree. All can have a measurable impact over a year.”
A few tweaks each year, and each year a marked improvement. But for how long? And is it enough?
“The business case for improving energy efficiency is clear in relation to savings over the long term,” says the BCSC’s Drury. “But until sustainability policy is simplified a large number of businesses may remain reluctant to go beyond the minimum.”
Drury’s organisation is calling for a review of the policies now in place in an effort to distribute the burden of improvements more fairly between tenant and landlord and across the lifecycle of the property.
Chris Bennett, managing director of niche practise Sustainable Commercial Solutions in London, argues tenants and landlords have done as much as they can internally to bring about a culture shift.
“For many occupiers, embracing sustainability can be a bit like trying to persuade reluctant children to eat vegetables,” says Bennett. “We all know they are good for your health but it can be a difficult and drawn out challenge.”
“If businesses don’t act, over time it will be unhealthy for them. But how can they be persuaded now?”
Bennett argues that it is time to force those veggies down.
“Government intervention should provide the carrot, and the stick, but it needs to be targeted and well thought out to drive positive, engaged change.” Unfortunately this has not been the case, he says. The various regulations have not been joined-up, nor have they been properly targeted to improving environmental performance and reducing carbon emissions.
This could soon change. Another reason landlords are more conscious of sustainability is that, as well as paying for it, they will soon be legally responsible for it.
In 2011 the Energy Act proposed that it would become unlawful to let or sublet buildings with an EPC rating lower than E. In 2018 that will become law. “It has the potential to be a game-changer, if not a climate changer,” says Bennett.
Not that this will pose much of a problem to many of the landlords or tenants surveyed by GVA or CBRE, who tend not to own or occupy F-rated buildings.
But according to Neil Sagoo, partner at law firm Maples Teesdale, that cut-off point won’t stay at E for long. He estimates the requirements will gradually become far more stringent, so that by 2050 the equivalent of an A rating will be required.
“This means landlords can no longer pay lip service to energy efficiency,” he says. “Whereas it was once a worthy aspiration, it is becoming as fundamental as fire safety or building regulations and is to be ignored at your peril.”
That’s the landlords taken care of, then. But how to ensure that tenants push sustainability further up their list of priorities?
One way is the use of a ‘green lease’, which can transform sustainability from an aspiration into something much more concrete.
“Landlords are increasingly using green lease provisions to provide a contractual mechanism to persuade tenants to make sustainability improvements in their fit-outs,” says Lown.
However, Bennett argues that thinking of sustainability as something which needs to be forced on the tenant is not helpful. “The regularly used term, ‘green leases’, is not always helpful since it infers a special type of lease with additional onerous requirements which can have negative connotations,” he says.
What should be guiding both occupier and owner to a bright sustainable future is Alexis de Tocqueville’s mantra – enlightened self-interest.
“Whether the organisation considering sustainability is a landlord or an occupier the approach should be the same,” insists Alan Somerville, DTZ’s head of strategic energy and sustainability. “Establish the economic, financial or operational targets required and then create the strategy or route map which achieves those. That is how value is created and scepticism dealt with.”
Eynon agrees. “The language of sustainability needs to move away from ‘green’ towards ‘efficiency’.”
For Victoria Herring, who is looking after the retrofitting programme on Grosvenor’s London estate, it’s all about how you frame the question to the tenants.
“If you asked ‘how do they rank sustainability’ then I’m not surprised they ranked it so low,” she says. “However if you break it down into the benefits and then ask how they rank those benefits, I think you’d find they appear higher on the list.”
Grosvenor recently carried out a survey of its tenants. Instead of asking if they cared about sustainability, they were asked if they would be willing to pay for improvements to their space. An example of the findings is that 32% were willing to pay for high levels of sound insulation, but only 18% were willing to pay for a property with fewer carbon emissions.
“But if you install secondary glazing
to improve your sound insulation you would also be reducing the energy needed to heat the building and therefore lowering carbon emissions,” Herring points out.
In other words, sometimes sustainability is a priority, the tenant just doesn’t know it yet. “Speak to the tenants in their language. Help them understand that they benefit, not just the planet, and they might just listen,” says Herring.
