Before the coronavirus pandemic upended the status quo, commercial real estate (CRE) was already undergoing a transition. While many companies were adopting policies and technology to allow their employees and businesses to operate remotely pre-covid, others still touted the benefits of smart, sustainable offices built for collaboration, comfort and employee engagement.
It goes without saying that the sudden shift to 100% work from home for many during COVID has had wide-ranging repercussions on people and business alike. While some have enjoyed getting back the time and cost invested into the daily commute, others have struggled with social isolation, or been pushed to the brink balancing work and home commitments with little to no support.
As we find our way to a “new normal”, it remains to be seen what exactly the future of work will look like. While we don’t have all the answers, here’s what we do know about how commercial real estate can meet this moment and recover from COVID-19:
Businesses – and especially CRE owners – need to adopt and disclose a low carbon action plan.
In his annual letter to CEO’s, asset-manager Blackrock’s Larry Fink details how the coronavirus pandemic has accelerated the reshaping of finance and transition to a net zero economy: “We are asking companies to disclose a plan for how their business model will be compatible with a net zero economy. …We are asking you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors.”
Public businesses such as real estate investment trusts (REITs) and large corporates who own or occupy buildings will be increasingly pressured to follow suit and disclose their ESG performance and net zero transition plan in order to remain competitive and attract investment. They can disclose their ESG progress through GRESB, the Global ESG Benchmark for Real Assets, which is present in 64 countries and measures over 96,000 assets in 2020. The GRESB evaluation is broken into three sections – Environmental, Social, and Governance – and the biggest area for improvement globally all fall within the Environmental category (specifically in Energy, Water, Waste, and Carbon Emissions).
In 2020, despite the stressful health and economic conditions, GRESB participation grew 22% amid accelerating investor pressure for ESG data.
The CRE industry benefits from having access to data and analytics solutions that help make these expectations possible.
We must improve building energy management to better match occupancy.
Buildings contribute 40% of global CO2 emissions – and it’s no secret that commercial buildings are underperforming. There are many contributing factors. Research shows the property and energy sectors lagged behind other industries in their adoption of technology. We also know that building operational energy improvements have struggled to scale as a result of organizational structures that fracture energy performance ownership across disparate stakeholders, a lack of goal-alignment and collaboration between owners and tenants, and interoperability challenges that arise from legacy building systems.
But even as building occupancy has plummeted to as low as 10-15% this past year, the energy reductions have not kept pace; only 10% of facilities reduced their energy use more than 20%.
Similarly GRESB’s 2020 results saw a 2% reduction in global energy consumption, 1.5% reduction in global water consumption, and 3% reduction in GHG emissions, much less than one would expect from buildings operating at vastly reduced capacity. This points to wasted energy and expenditure in the built environment. We must get to a point where consumption is aligned to occupancy.
Indoor health and safety will be paramount.
As people prepare to return to work, building owners must ensure tenants and employees have safe and healthy buildings to come back to. Covid-19 is commonly transmitted by air and shared surfaces. ASHRAE cite that HVAC systems can play a significant role in transmitting germs, so monitoring air ventilation and filtration systems is just as important to promote occupant safety as cleaning protocols. Building Management Systems (BMS) are a key tool to manage HVAC systems, but next-generation software using IoT hardware can enable greater indoor environmental quality monitoring, without the need for sub-metering.
Building services models must evolve to focus on outcomes rather than hours.
To meet the needs of investors and building occupants, building owners will need to look for new solutions. Their traditional solution partners are building services firms such as HVAC, mechanical engineers, controls and facility management contractors. The business models of these firms are built around the hourly rate of engineers or maintenance professionals sent to sites to solve problems. This type of model is too narrow, too reactive and insufficiently sophisticated to promote an optimal indoor environment that is required to return to work.
Increasingly, building services will become outcome focused to move beyond the scheduled and reactive maintenance strategies that don’t address the core concerns of the building owners and occupants.
In today’s environment, it’s no longer enough to meet expectations — building services firms will need to rise to the occasion and enhance their service offerings, or risk becoming obsolete.
Building owners and tenants will need to become more collaborative in tackling emissions and energy performance.
Data shows that tenants consume somewhere between 60-80% of the building’s total energy consumption. However, conventional leasing practices have historically hindered both landlords and tenants from investing in energy management solutions. Green leasing practices (also called “energy-aligned” or “high-performance” leases) allow tenants and landlords to collaborate and save energy, reduce costs, and achieve organizational sustainability goals.
With many building owners and tenants alike are seeking to achieve low carbon goals, now is the time to innovate. By normalizing green leases, CRE landlords and tenants alike can reduce costs for energy management initiatives, provide transparency and accountability, and enhance financial and strategic benefits of leading sustainability performance.
This challenge can be an opportunity.
Regardless of the challenges commercial real estate is facing, the reality is that the physical building portfolio must be ready to reoccupy – whenever and however it happens.
Prior to COVID-19, the CRE industry was set to make incremental changes because buildings were occupied and there was no sense of urgency.
Just as governments both local and national have responded to the coronavirus pandemic with a “build back better” strategy, so too can commercial real estate. Disruption to business as usual can enable time for reflection, planning and investment to tackle long standing issues.The leaders in the CRE sector will use this time of reduced occupancy and activity to do some much needed future-proofing.