Last week stok presented at the Getting to Zero National Forum in Denver. The conference focused on the latest developments in the relatively new but rapidly growing Net Zero Energy (NZE) building market.
While a majority of the conference centered around case studies, design recommendations, and policy enhancements and strategies, an additional and arguably more impactful theme emerged around how to value the full benefits of these buildings.
stok was happy to play a role in this introduction.
Our presentation in the “Operating at Zero and Delivering Value” breakout session addressed high performance buildings, which are often considered the counterpart of NZE buildings.
A high performance building is one which optimizes building efficiency, enhances the occupant experience, and minimizes environmental impacts from design to demolition. The most common value driver for high performance buildings to date has been the first part of this definition, as the Utility and Maintenance savings eventually pay for the investment. We argue that this value is meager in comparison to the value these buildings can add to the occupant experience.
stok has approached valuing the occupant experience and its impacts on an organization’s bottom line head-on, and has consistently explained the importance of employee impacts in project decisions. The 1-10-100-1000 rule-of-thumb ratio explains this well. For every $1 spent on design, $10 are likely to be spent on construction, $100 on operations, and $1000 on employees, for the life a building. This ratio illustrates that employees are a firm’s greatest cost, as well as their greatest asset, so shouldn’t buildings be designed to reduce this cost and optimize this asset?
Furthermore, the way we value organizations has drastically changed over the past 40 years. Consider the top companies in the U.S. in the S&P 500. In the 70’s the U.S. was considered a manufacturing economy in an industrial nation. Today the U.S. is primarily considered a service economy. What is interesting, though, is the change in how we value the S&P 500 in the 70’s vs. 21st century.
An organization’s value was primarily based on its tangible assets in the 70’s, but as the economy shifted, more and more organizations were valued based on their intellectual capital—in layman terms, their people. So we ask again, if more than 80% of a company’s value is based on their people, why aren’t buildings designed to optimize their performance?
Since the early 80’s there has been a growing amount of academic and industrial research conducted to correlate human experiences and performances in varying spaces and conditions. This impressive body of research eventually inspired a green building certification specifically focused on human health and wellness: WELL Building Standard.
As stated, evidence demonstrating direct correlations between enhanced indoor environmental quality (IEQ) and occupant performance have been studied and known for a considerable amount of time, and the number of studies on these consumer-centric metrics has increased substantially, as illustrated in the chart below from our own research.
What makes this decade different is the ability to track and manage various IEQ conditions. After all, you can’t manage what you don’t measure, but new technologies are allowing organizations to measure, and thus manage, IEQ conditions to help maximize the performance of their spaces. Organizations that take advantage of these new technologies to manage their spaces will be at the forefront of the real estate industry.
To assist with measuring and managing IEQ conditions, stok argues that the seemingly intangible human impacts are in fact quantifiable from a bottom line perspective. stok’s report on the Financial Case for High Performance Buildings examines how impacts on productivity, retention, and health can be quantified.
In short, our research has identified that in a 150,000 square foot high performance commercial building, when the utilities and maintenance savings, increased employee productivity, increased employee retention, and increased employee health impacts are combined, the occupier of this space is likely to see a benefit of $18.56/sf per year in bottom line profit compared to conventional buildings.
Now that is clear, quantified, and impactful value that must be accounted for in the delivery of high performance and NZE buildings. If benefits to the occupant are left out of considerations, a key value driver is left out as well.
Quantify the financial benefits of investing in people through high performance real estate.
This post was written by Jeremy Attema. Specializing in real estate strategy for stok, Jeremy uses in-depth financial analysis to demonstrate a business case for sustainable and energy efficient strategies across real estate portfolios.