Investors Focus on Building Health More Than Ever: Study
- Apr 02, 2021
Sometimes good things arise from a crisis, and that could be the case as the commercial real estate industry responds to the COVID-19 pandemic.
A new global survey of leading real estate owners and investors has found that 92 percent of respondents expect demand for healthy buildings to grow over the next three years, and that 87 percent have seen increased demand for healthy buildings over the past 12 to 24 months.
The study, titled “A New Investor Consensus: The Rising Demand for Healthy Buildings,” is based on input from global real estate investment managers and stakeholders representing total aggregate assets under management of $5.75 trillion and CRE portfolio investments totaling about $1.03 trillion. The survey was coordinated by the United Nations Environment Program Finance Initiative; the nonprofit Center for Active Design and global real estate investment management adviser BentallGreenOak.
Conducted in November and December 2020, the survey was intended to both “evaluate how health and wellness is emerging as a major component” of environmental, social and governance criteria and document how the COVID-19 pandemic is influencing investors’ approaches to ESG issues.
The reasons for investing in healthy buildings are varied—and the top four are the COVID-19 pandemic, tenant satisfaction, human health and market differentiation.
But investors are also driven by financial reasons. The survey cites a 2020 study by the Massachusetts Institute of Technology which found that, from 2016 to 2020, commercial properties with healthy building certifications sustained rental rates per square foot that were 4 percent to 7 percent higher than noncertified peer buildings.
“Our collective experience with the first modern pandemic in our lifetime is teaching us how closely tied investment performance is to operational excellence, tenant engagement and community relationships,” said BentallGreenOak President Amy Price.
Regardless of the mix of reasons, investment in healthier buildings is happening: Nearly 90 percent of respondents plan to enhance their company’s health and wellness strategy in 2021.
Survey respondents agreed that, while attention to healthy buildings had been growing already, the pandemic has accelerated such concerns. The majority of respondents—94 percent—see tenants as the stakeholder group that’s foremost in driving demand for healthier buildings.
“Tenants are now asking more than before about indoor air quality and a host of health and safety issues,” reported Eric Duchon, global head of real estate ESG at Blackstone. “How the landlord responds by prioritizing the tenant’s health and safety is critical to creating that link between landlord and tenant, which will help stabilize leased and physical occupancy as we emerge from the pandemic.”
Vicky Cotton, ESG director at Workman LLP, cautioned that any tech-savvy tenant can amass knowledge about building performance. “Prudent ownership and management must prepare for this growing eventuality and proactively address health outcomes.”
Taking a longer view, Christopher Merrill, co-founder, chairman & CEO of Harrison Street, noted that, given the rollout of vaccines, the investment will not be to combat COVID-19, but “how to demonstrate to stakeholders that one is being proactive and prepared for any virus or infectious disease.”
Future investments will include enhanced monitoring and reporting of air quality, higher levels of filtration or increased amounts of fresh air being pumped into the system where necessary, as well as new cleaning and sanitation protocols.
“The pandemic has highlighted the importance of health in real estate and the perils of being unprepared for future events,” said Anna Murray, managing director & global head of ESG at BentallGreenOak. “The steps we take now to mitigate future risks will have clear implications for the safety and well-being of our occupants, and the spaces that they rely on for their prosperity,” she added.
Read the full report here.