Linda G. Tresslar, Managing Director, Strategic Consulting Group, Grubb & Ellis Co. (Apr/May 08)
Not a day goes by in news and commercials that we do not hear something about going green, sustainability, or saving the environment. Since much of our collective community efforts are possible only through our use of real estate, this represents one of the biggest areas of opportunity to make significant gains. So, it is a natural progression for the real estate industry to move to the forefront in taking a proactive stance. It is also why there is increasing legislation - both on the punitive and incentive fronts - to ensure that owners and users of real estate act in concert with the collective desires of our communities to make positive impacts on the environment.
Governmental regulations and mandates regarding pollution, the use of chemicals, and disposal of waste byproducts, etc. are certainly not new, and restrictions on land usage have also been a common tool for controlling our collective impact on the environment. In recent years, however, new areas of regulation and use mandates and marketplace demands have emerged that are having a profound impact on the level of and the way we conduct environmental due diligence.
Corporate surveys - like Area Development's - have highlighted the importance of factoring environmental considerations into the site selection decision from both the user and the owner/investor side of the equation. The aggregation of these trends ensures that environmental considerations will continue to have an enhanced place in the overall evaluation of locations from a corporate operating perspective.
What Must A Location Deliver?
The old "first do no harm" and "mitigate your risks" mentality of environmental due diligence has given way to enhanced operating efficiency and better environmental stewardship as the hallmarks. Both owners and users or tenants of commercial real estate are becoming focused on minimizing their impact on the environment through goals such as carbon neutrality and enhanced energy efficiency. The marketplace can easily quantify the benefits of enhanced operating efficiency and lower operating costs. However, other goals, like a reduced carbon footprint, are being driven more by social corporate responsibility initiatives than by pure operational efficiency.
An even cursory search of today's news will confirm that we have crossed the Rubicon, so to speak, with respect to enhanced environmental consciousness and expectations. People want to live and work in places that have a positive impact on the environment and on their own health. The trend is prevalent in every sector - from office-using corporations to retailers to manufacturers. Moreover, employers are now realizing improved work force productivity as a result of the implementation of real-estate-driven operational initiatives in areas such as air quality, for example. With ever-increasing competition among corporations for talented employees, meeting their expectations as well as those of customers, is sine qua non to market competitiveness.
Companies are now even being assessed in the investment market with regard to their sustainability activities and successes. Consequently, it has now become important to both users and owners of real estate that its design, use, and impact meet these new levels of environmental expectations. Real estate that does not satisfy these marketplace expectations is destined to become economically and functionally obsolete. Good environmental due diligence during the site selection process should provide an accurate assessment of where an asset stands in regard to this new focus.
We see this shift manifesting itself in many new ways, especially in the expanded definition of what constitutes environmental due diligence. On the corporate social responsibility front, owners and real estate service providers must now demonstrate how the real estate itself and its operations will satisfy a tenant's corporate responsibility mission and operating protocols, which now often include reducing their carbon footprint, supporting broader community health goals, etc. While these have traditionally been viewed as a company's initiatives, the emergence of newer real estate products - such as LEED (Leadership in Energy & Environmental Design) certified properties - is providing market options for tenants to better achieve these goals. Market competition, not just expanded regulation, is giving rise to the adoption of these broader and newer areas of environmental due diligence.
Therefore, when a company is considering how to factor environmental considerations into a site selection decision, it is important to understand the changing landscape of sustainability initiatives - from building standards to trends in compliance to regulations and their likely impact on overall operating costs and the ability to attract and maintain a quality work force and to present a good image of corporate social responsibility. The following industry trends need to be considered:
Better building options are emerging. Driven by the desire for more efficient operations and enhanced sustainability practices, the U.S. Green Building Council (USGBC) was formed to promote the adoption of standards in design, materials use, and operations geared to promoting these goals. Active membership in the USGBC continues to expand and the rate of both newly credentialed LEED-certified professionals and properties is increasing rapidly.
The emergence of such a mechanism with which to measure positive environmental impacts was essential to cultivating a common measurement system and criteria to be used in the marketplace. And while the USGBC is the driving force at home, this is a global trend with similar initiatives ongoing worldwide. The adoption and use of LEED standards will continue to drive and standardize this area of environmental due diligence for all participants in the real estate industry from owners to users, from lenders to insurers.
The benefit to companies in the site selection process is the adoption of standards with which to compare markets and particular assets on a consistent basis. Industry education and information can be obtained for multiple markets, and one can gauge the speed with which certain markets are adopting best practices in the areas of sustainability and where investment dollars supporting such activities are being spent.