In the run up to the pandemic many enlightened landlords and developers were starting to pay greater attention to the impact their buildings had on people. In particular, they were exploring whether or not buildings could be designed, built out and operated in a way that optimised the health and wellbeing of the people who worked in the space.
Now, as the world emerges from the pandemic and employers investigate new ways of attracting their employees back to the workplace, landlords and developers are embarking on a new space race, rushing to retrofit existing buildings with all manner of features and working up plans for a new generation of buildings that promote health and wellbeing.
But can the health and wellbeing of people truly be affected by the buildings they work in, and if it can, is there an opportunity for landlords and developers to charge a ‘wellness premium’ for healthier workspace? Industry experts are in no doubt about the important role commercial real estate can play in delivering space which supports employee wellbeing.
“This is probably best demonstrated by the increased awareness of the role indoor air quality plays; from how it impacts our health and our productivity to helping control the spread of viral infections,” says Donna Rourke, head of ESG at BNP Paribas Real Estate.
“Poor air quality contributes to one in five deaths globally, so the critical role of healthy indoor air has risen fast on the workplace agenda.”
In addition to helping prevent illnesses and even deaths, research suggests that better air quality in buildings can significantly enhance the performance of employees. Maria Garcia, principal sustainability consultant within the sustainability team at Savills, cites a Harvard study that found better indoor air quality improved workplace productivity and cognitive function by 8%-11%.
“Similar studies show that getting air quality and ventilation rates right can lead, on average, to an 8% improvement in staff performance and up to a 35% reduction in absenteeism. Getting thermal comfort conditions wrong can mean employee performance dropping by between 4% and 6% due to the fact that they’re too hot or too cold,” she says.
Ilyas Aslam, chief operating officer at global real estate investor and developer Quadrum, agrees with Rourke and Garcia’s assessment that real estate can positively influence people’s health and wellbeing. “Whether that’s through ensuring environmental comfort, good air quality, daylight, access to nourishing food and water, or spaces that create community or provide relaxation,” he says.
He cites his company’s new net-zero office development at 11 Belgrave Road in London as one with wellbeing at its heart. It features strategic planting on the building’s terraces to absorb pollutants, has a ground floor garden of 2,600 sq ft for outdoor working and has been pre-certified WELL ‘Platinum’ for health and wellbeing.
For James Neville, a partner in the City leasing and development team at property adviser Allsop, the concept of health and wellness in commercial real estate is evolving thanks to new development projects like 11 Belgrave Road and The Bindery office building in Farringdon, developed by Dorrington, which enlisted the help of Dr Jeanette Hennigan of mental health and wellbeing consultancy Help Your Head, to create a workplace that supports and enriches the wellbeing of everyone who uses the space.
Neville says developers and landlords started out offering physical amenities like gyms for tenants, but their approach is now much more design and service- led. For instance, The Bindery features artistic murals on the staircase to ‘activate’ the space and encourage people to use the stairs rather than the lift.
“What’s underpinning it is the sheer quality of the space, creating an environment you want to be in and making it feel like your home away from home,” says Neville. “It’s a recognition that the physical environments around us have a significant impact on our wellbeing by virtue of the time we spend in them, and that therefore they need to, at an absolute minimum, maintain our quality of life.”
Many of the physical amenities landlords and developers started to include in new developments over the last five-to-10 years, such as gyms and cycle stores, have now become the norm and as we emerge from the pandemic landlords are trying to differentiate their space by offering unique and attractive environments to work in, according to Nisha Agrawal, director, sustainability, at global real estate investment, operating and development company QuadReal. However, this shift is not without its challenges.
“A main challenge between asset classes is the cost of adding in these healthy amenities and getting tenant support,” says Agrawal. “Currently there is more support for these amenities in the office sector compared with industrial, however, this is changing.”
Agrawal adds that in the industrial sector companies are increasingly building warehouses with natural light and access to fresh air. The trend is already fairly common in Europe, but he expects delivery of this type of building to start soon in North America as the logistics market in the US continues to boom. Meanwhile, in Japan, the severe labour shortage means that logistics developers need to make their facilities as staff- friendly as possible.
“In terms of retail, the amenities are quite different than what you see in the office and industrial sector,” says Agrawal. “In this space, we are seeing a push for more healthier food options, but ultimately this is driven by supply and demand.”
This push across all forms of commercial real estate is being driven by tenants, for a couple of different factors, explains Neville. “Following the pandemic, tenants are not only vying to encourage their employees back to the office, they’re also competing with each other to retain and attract talent,” he says. “An office that has wellbeing features incorporated, ranging from bicycle parking to relaxing rooftop gardens, is in much higher demand, and developers are acting accordingly.”
Across some global territories tenant demands are similar, but some countries have been quicker to adopt and embrace the new ways of working accelerated by the pandemic than others, which impacts on their real estate requirements.
“You’ve got markets that are more open to the adoption of the various different guises of hybrid working,” says Isobel McKenna, head of workplace solutions, EMEA, at Upflex, a provider of hybrid workspace solutions.
“I think the UK, Germany and Netherlands have led the way, whereas APAC and some other European countries are a little slower [to adopt to the new ways of working]. And then you’ve got markets like France where they’re definitely adopting hybrid working, but it takes a little longer in France because of the works councils.”
Due to these differences, in some territories landlords and developers are focusing their efforts on different health and wellbeing areas, says Agrawal. “At this point, North America and Europe have moved beyond the basics of clean air, water, etc, and are focusing on larger more robust healthy amenities,” he explains. “This contrasts with the Asian market where many are still focusing on clean air and combating toxic substances in construction, for example.”
Of course, it’s all well and good landlords and developers putting in place a host of measures in buildings that promote health and wellbeing, but they need to recoup this additional outlay by charging more rent for the space. So are tenants willing to pay a ‘wellness premium’? Quadrum’s Aslam believes they are.
“We have made a significant upfront investment at 11 Belgrave Road to closely link sustainability and wellbeing,” he says. “The building is one of only six to be design-certified WELL, targeting the highest ‘Platinum’ level. It’s also net zero, BREEAM ‘Outstanding’ and the first to achieve a design- reviewed NABERS UK 5.5 star rating. We’re already getting interest from prospective tenants that might not have looked in such locations before because employees and their wellbeing has become the priority in decision- making. They are prepared to pay for the best space.”
Allsop’s Neville agrees. He says at The Bindery offers are being received for the space that would set a new rental record for the area and those rents “are very clearly linked to the quality of the space and its focus on wellness”.
In addition to anecdotal evidence from agents and developers, which suggests building owners can command a premium and generate stronger returns on real estate that promotes health and wellbeing, there is a growing body of data to support this assertion.
The International WELL Building Institute’s (IWBI) 2021 paper Investing for Health: Examining the ROI of Healthy Buildings, outlines the business case for healthy buildings and argues there is a “5%-6% rent premium on properties with good daylight and a 5.6%- 7.8% premium on properties with street- front greenery [in New York City], a 1%-9% increase
in property values related to walkability scores and an MIT analysis of the Boston market showed 4.4%-7.7% rent premium for properties that had pursued a healthy building standard”.
The benefits of delivering buildings that promote health, and wellbeing are becoming clearer to tenants and landlords/ developers alike, and Will Poole-Wilson, managing director at architect and interior designer Will + Partners, says it is exciting to finally see investors and landlords along with occupiers having the conversations that matter.
“It is no longer the realm of the lonely architect advocating wellness and sustainability,” adds Poole-Wilson. “Nevertheless, this needs to translate into action faster, and a focus on good design and due diligence is key. There are no silver bullets, but change is good. It stops you going rusty.”
Basil Demeroutis, managing partner at real estate investment firm FORE Partnership, agrees with Poole-Wilson that while major inroads have already been made by some developers and landlords, there is still room for improvement in the commercial real estate sector.
“I think we could do better at putting in place initiatives that actually enhance health and wellness – physical and mental – as opposed to being on the defensive,” says Demeroutis. “There are a tremendous number of positive benefits that our buildings now offer and we should be celebrating these. We’ve come at the topic historically from a ‘do less harm’ mentality – how do we reduce the harmful side-effects our buildings have on us? But like reducing the amount you smoke every day, this hardly serves to improve health, but just to the impact marginally less bad.”
He suggests a new approach is needed which places the emphasis on considering how commercial buildings can actually enhance health. “We think about how coming into one of our buildings is actually better health- wise than any alternative,” he says. “We do this by reducing the friction of making healthy lifestyle choices around exercise, food, hydration, and mental health. It’s a combination of the physical way we design our spaces – the hardware – with a significant contribution from the software and how we use those spaces.”
If landlords and developers can come up with a formula which enables them to optimise the health and wellbeing of people who work in their spaces, occupiers will benefit from a productivity boost and landlords should see the benefit on their own bottom line with a real ‘wellness premium’.