"Buildings achieving higher rent prices tend to offer high-quality outdoor spaces, such as roof terraces with green roofs, rainwater collection, and photovoltaic panels"
Attractivity is one of the key topics at the upcoming MIPIM 2023 conference and it refers to the degree of interest or appeal a property holds for potential buyers or renters. It can be influenced by factors such as location, features, design, amenities and price.
The level of focus by developers and landlords on attractivity has increased significantly over the last decade. Green spaces, coffee shops, retail opportunities, large atriums and more have been added to developments across the US, UK and Europe for more than a decade. All of this is assumed to increase attractivity, and therefore rental returns, but recent research from Oxford University’s Said Business School shows that this may not always be the case.
The study examined office spaces in London and found evidence of a trade-off between rent levels and the different factors that make up attractivity.
The analysis found that in fact, “most amenities do not show a substantial correlation with rent levels.” It surmises that some amenities might not be clearly perceived as relevant quality signals, and may go unadvertised, with potential tenants, therefore, failing to take them into account.
What the research is certain about, is which amenities showed did show positive and negative correlations with rent levels.
It should come as no surprise in 2023 that amenities with positive correlations to higher rent levels in the London office market related to sustainability and sustainability certifications from organisations like WELL, Fitwel, and BREEAM. Additionally, features supporting a flexible fit-out, such as column-free offices, tended to achieve higher rental returns, while amenities that limit flexibility, such as "Plug & Play Fit-Out," were typical indicators for lower rental returns.
The study found that buildings achieving higher rent prices tend to offer high-quality outdoor spaces, such as roof terraces with green roofs, rainwater collection, and photovoltaic panels.
In addition to outdoor spaces, buildings with higher rents typically offer high-end bike storage, parking spaces and charging options for electric vehicles. Better-equipped showers, changing areas and locker facilities set higher-rent buildings apart from their competition.
These findings suggest that landlords in London are increasingly offering amenities relating to sustainability to attract tenants and that these amenities are becoming increasingly important when viewed against more traditional elements in determining the rent prices of commercial spaces, indicating an economic case for sustainability beyond environmental impact.
Whilst this study applies to office spaces in the London market, other similar markets will likely yield similar results. The Edge in Amsterdam, Netherlands is a great example of increased attractivity through sustainability and other premium factors. The Edge is a state-of-the-art office building that was completed in 2015 and is widely considered to be one of the most sustainable buildings in the world.
It features a comprehensive waste management system that includes a recycling program for paper, glass, plastic, and metal, as well as composting and food waste reduction initiatives. The system involves the collection, weight and registration of waste per occupier, in order to continue waste and carbon footprint reduction.
The Edge also reduces water waste through its rainwater harvesting system, capturing and reusing rainwater for irrigation and other non-potable uses. The system is entirely hidden behind ceiling tiles, with massive coils of thin blue piping delivering water through the building.
In summer, this water is delivered and stored underground, pumped back up in winter for radiant heating and cooling, which makes this the world’s most efficient aquifer thermal energy storage system. The building itself is proof that sustainability does not mean compromising on aesthetics.
Whilst the effect of the built environment on people’s mental health and well-being is well documented and developers have been including these elements in developments for the better part of a decade, integration with the Internet of Things (IoT) remains a more recent development, resulting in industrial-scale energy, water and waste management systems with 24-hour monitoring and self-adjustment, like The Edge in Amsterdam.
Another recent paper published by IWG evaluates the recent rise of decentralised office spaces: a growing trend following the pandemic and one that continues to appeal to staff who are looking for a better quality of life and a less crowded alternative to commuting into city centres. This research, published in 2021, showed that demand for suburban office space soared by 32 per cent, while enquiries for city-centre locations fell ten per cent in the first quarter of 2021 compared to 2020.
The reason is shifting definitions of attractivity, in this case, the impact of location. Suburban offices offer lower costs (but not necessarily), larger office spaces and access to parks, nature trails and other outdoor spaces that are increasingly desirable. The pandemic accelerated many trends, including an existing shift to decentralised offices. Hybrid working has placed even more demand on these spaces, as businesses use hybrid hours as an additional incentive to combat the ongoing war for talent.
Finally, the need for decarbonisation in real estate assets has become increasingly pressing as the world continues to face the adverse impacts of climate change.
The industry is well aware of the need to make changes to building operations, energy systems and materials to lower the carbon footprint of real estate. Once again, however, the benefits of decarbonisation are not limited to the environment.
As we have seen, decarbonised real estate assets are also more attractive to investors, tenants and buyers, as they offer a healthier, more sustainable living or working environment. In addition, decarbonised buildings can play a significant role in lowering operating costs and increasing the value of real estate assets over the long term.
Asset managers and developers play a crucial role in promoting change in the real estate sector. They can ensure that new buildings are constructed in a more sustainable and energy-efficient manner and that existing buildings are retrofitted with sustainable energy systems and materials.
Asset managers also have opportunities to implement policies to reduce energy consumption and educate tenants and investors on the benefits of decarbonisation, serving not only environmental aims, but also enhancing the reputation and attractivity of each asset.
