Enhancing social value in real estate

Katherine Lang shares insights from the World Economic Forum’s Urban Transformation Summit 2024 on how we can build a pathway to sustainable communities. As real estate professionals, we have an incredible responsibility: delivering (or denying) social value to the developments on which we work. That may mean social value for the employees in a multi-let office building or for those living in build-to-rent or single-family residential projects, student housing, or social housing: all have their own social needs, usually very specific to the project, its location and community. In the UK, we have failed before in this mission. Witness the slum clearance, high-rise development and suburbanisation of the mid-20th century, viewed primarily as a technical and political process. Arguably, little consideration was given to any social impact on local communities, and minimal consultation was undertaken with local residents. The consequences still resonate today. How can these social needs, and their value, be defined, delivered and measured; and how can you play a part? Drawing on discussion at the World Economic Forum’s Urban Transformation Summit 2024, and other sources from the burgeoning wealth of research and thought leadership on this topic, this article tries to get to the heart of social value and what it means for our work. Defining social value Social value in real estate refers to the positive social, economic and environmental impacts that property development and management can generate for communities. This encompasses a wide range of outcomes, including affordability, improved health and wellbeing, inclusivity and enhanced community cohesion, increased employment opportunities, and environmental sustainability. It can be highly subjective, varying between projects, stakeholders and communities. The UK Green Building Council has created a framework for defining social value, which emphasises that social value is created when buildings and infrastructure support the wellbeing of people and communities and improve quality of life. This framework draws on multiple existing definitions of social value from sources, including local authorities, across the UK. Delivering social value Even if anticipated social value has been defined, delivery can be a challenge. The World Economic Forum recently published a playbook which seeks to understand the challenges in effective delivery of social value (Improving Social Outcomes in Urban Development, 2024). It suggests that gathering a coalition of local stakeholders can help to establish a place-specific vision of social value. It also recognises the benefits of a development charter, or development agency for large-scale projects, to ensure flexibility and long-term stewardship of the scheme. It notes that social value outcomes should be considered early in the design stage of the project and monitored throughout its life cycle. Additionally, if stakeholders are receptive to social value priorities and utilise key performance indicators and metrics, social value outcomes can be included as objectives when selecting partners and drafting contractual documentation. Measuring and reporting Measuring and reporting social value is essential for demonstrating the impact of real estate projects and ensuring accountability. However, the lack of standardised metrics, and a scarcity of data, has historically been a challenge, making it difficult for developers and investors to quantify the impact of their initiatives and compare them across different projects. Some real estate-specific tools and frameworks have been developed in recent years, such as the Social Value Portal’s Real Estate Social Value Index and the National Themes, Outcomes and Measures Framework. RESVI is GRESB-certified, and can use data from in-use assets to measure and report social value. TOMs is extensively used by local governments across the UK, which value its consistency, and it is available to all sectors. In addition, some proxies can be used that are not real estate-specific, such as the Social Return on Investment methodology, the European Sustainability Reporting Standards, and the Corporate Sustainability Reporting Directive. Beyond this, the impact of social value objectives in a project should also be measured. Impact Frontiers suggests a relatively robust methodology, factoring in risk and investor contribution, and recommending granular data categories that can be used to understand actual impact. The measurement of social value in real estate is worthy of an article in itself. The key point to note is that, even with improved methodologies, this remains a difficult process. The inadequate or inexpert use of any tool or framework could result in unintended “social washing” or other consequences for a project. Equally, the use of a financially focused proxy such as SROI can lack nuance, missing other non-financial but equally “valuable” benefits to communities. The business case The benefits of prioritising social value extend beyond compliance and corporate responsibility, and it is increasingly recognised that better social value planning and outcomes will offer tangible financial and reputational advantages. Increased property value: Research by the Social Market Foundation indicates that properties which incorporate social value can experience a market value uplift of up to 5%. Properties with strong social value credentials may command higher rental yields and sale prices (though it can be difficult to separate the impact on value from other ESG credentials that the same property might enjoy, such as better energy efficiency). Attractiveness to investors: There is growing market demand for sustainable and socially responsible investments. Real estate assets that demonstrate a commitment to social value are increasingly appealing to institutional investors who prioritise ESG criteria and realise the benefit of a “social return”. As the Social Market Foundation notes, “pursuing social value is increasingly seen as consistent with pursuing profit”. Planning perspective: Projects that emphasise social value might gain a competitive edge in securing planning consent. Some commentators suggest that local authorities are more likely to approve developments that align with community needs and deliver tangible social benefits – some of this has been driven by the Public Services (Social Value) Act 2012, as noted below. Reputational benefits: Reputationally, a focus on the “E” of ESG is becoming relatively mainstream, driven by both legislative pressures and internal corporate commitments. A focus on the “S”, though not subject to the same legislative push factors, is being pulled to the fore by internal drivers. Companies that prioritise social value can significantly enhance their brand reputation. For example, in its 2024 Gen Z and Millennial Survey, Deloitte notes that 75% of such employees, who are increasingly purpose-driven, want their employers to make a positive societal impact. Equally, many organisations are aligning themselves with the UN’s Sustainable Development Goals, a number of which directly relate to social impact. Community relations: In its Social Value Playbook, the World Economic Forum notes the imperative for public and private sectors to collaborate to create genuine social value and address the challenges faced by many urban communities. Developments that prioritise social value can foster goodwill and trust among community members, reducing opposition and enhancing community support. Legal touchpoints The social value impact of a development is influenced at a number of key junctures during the legal process. Procurement: The Public Services (Social Value) Act 2012 is a cornerstone, requiring public authorities to consider social value in procurement processes. This Act has been instrumental in embedding social value considerations into public sector projects, while also influencing private sector practices. Planning: Local plans and section 106 agreements, for example, can ensure that new developments contribute to social value goals. The Social Market Foundation notes, in its Social Value Roadmap for Real Estate, that a section 106 agreement is probably the most common way that social value can be contractualised at this stage of a development. Section 106 commitments can mandate developers to provide affordable housing, community facilities, and other social benefits, for example, as well as location-specific needs such as transport or education improvements. However, it is essential that social value goals are not specified in isolation. Engaging with the community during the planning process is crucial for identifying local needs and priorities. Public consultations and participatory planning processes ensure that developments reflect the aspirations of the community, and deliver meaningful social value. “Responsible” leases: Recent research by JLL reveals that lease agreement limitations are one of the main barriers to achieving social value goals in real estate. Responsible leases – that is, enhanced green leases – can include clauses that promote social impact. For example, the Better Buildings Partnership’s Green Lease Toolkit includes a template social impact clause, with a “light green” option requiring cooperation between landlord and tenant in relation to social impact surveys, and compliance with anti-slavery and human trafficking laws. The “dark green” alternative expands this to include: a requirement for tenants to have regard to (and comply with, where practicable) policies to maximise employment and skills opportunities within the building; diversity and inclusion policies to improve accessibility within the building; deliver consolidation policies to reduce congestion near the building; and policies designed to minimise food waste and encourage sustainable business in the building. This darker-green alternative depends of course on the landlord having such policies in place. The template also includes suggested wording requiring the landlord to use reasonable endeavours to ensure that its employees and contractors at the building are paid the Real Living Wage (with an optional proviso that this does not lead to a material increase in the tenant’s service charge contribution). Clearly any social impact provision that is added to a lease will require situational analysis, and should be adapted according to the building’s location and intended use, and to the character of the local community. It is not an easy copy and paste between assets, or developments. Future directions The social value of real estate is a result of a complex interplay of factors, throughout the life cycle of a real estate project. Defining the desired social value, overcoming hurdles in delivery, and measuring not only social value outcomes but also their impact, is only part of the picture. Investors need to recognise the financial and reputational benefits of a focus on social value. Developers should consider how an emphasis on social value may enhance the development process in itself, through better stakeholder engagement. And advisers can draw on the growing body of insight on this topic to advocate, where appropriate, for the contractualisation of social value principles, for example via a responsible lease. At all times, parties need to remember that the required process and desired outcomes will be nuanced and specific to the particular asset, location and stakeholders; though it is hoped that there is some commonality in the end result: sustainable, inclusive and resilient communities. Katherine Lang is a senior knowledge lawyer at Baker McKenzie; this article was reviewed by Dr Eime Tobari, global director, social impact at Avison Young and World Economic Forum Fellow, and her contribution is gratefully acknowledged Photo © Hannah Busing/Unsplash