Master thesis
University of Amsterdam
Author: Sander Bootsman Student number: 11208090 Supervisor: Prof Dr. Ed Peelen Programme code: MSc EPBK
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Statement of Originality
This document is written by Sander Bootsman, who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Abstract
This study examines the relationship between external factors (environmental concerns, legislation, market conditions, technological developments, social factors and financial factors) and the willingness of commercial real estate investors and developers to invest in sustainable real estate. Besides this, this study also examines the relationship between property level drivers of a sustainable object (decreased risks, decreased property costs, increased property value and productivity gains) and the willingness of commercial real estate investors and developers to invest in
sustainable real estate.
Also, the correlation between the external factors and property level drivers themselves and between each other are researched. Data was collected out of 104 respondents. All respondents are real estate investors, developers or both. The results show that all external factors and property level drivers, except legislation, social factors and increased property value, are significant decision factors when making a decision to invest in sustainable real estate. Also, the results show that there is positive correlation between external factors and property level drivers themselves and between each other.
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Table of content
1. Introduction ... 6
2. Literature review ... 9
2.1 Introduction to sustainable development ... 9
2.2 Property level drivers ... 11
2.2.1 Decreased risks ... 11
2.2.2 Decreased property costs ... 12
2.2.3 Increased property value ... 14
2.2.4 Productivity gains ... 18 2.3 External factors ... 20 2.3.1 Environmental concerns ... 21 2.3.2 Market conditions ... 23 2.3.3 Technological developments ... 26 2.3.4. Legislation ... 28 2.3.5 Social factors ... 30 2.3.6 Financial factors ... 32 2.4 Investment decision ... 35
2.5 Conceptual model and expectations ... 38
3. Method ... 40
3.1 Sample and procedures ... 40
3.2 Measures ... 41
3.3 Strategy ... 44
3.3.1 Data transformation: dependent variable ... 44
3.3.2 Data transformation: independent variables ... 45
4. Results ... 49
5. Discussion ... 54
5.1 Theoretical and practical implications ... 57
5.2 Limitations and further research ... 59
References ... 61
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1. Introduction
Across the globe, there is an increasing amount of interest in how to make real estate more sustainable. This discussion was started and accelerated by the climate treaty of Paris in 2015. This is an international treaty to which, in first instance, 195 countries agreed upon. The most important goal of the treaty is to make the world more sustainable and to significantly reduce gas emissions as these are the main reason for pollution worldwide. The real estate sector is one of the sectors that has the ability to realize a much needed transformation which can help to achieve the goals that have been set by the climate treaty of Paris.
This thesis zooms in on the sustainability topic from the angle of the
commercial real estate sector, which is a sub-sector of real estate. This sub sector has a large footprint (World Economic Forum, 2016) and still has a lot to win in terms of sustainable development and awareness. This is because buildings have an extensive impact on their (local) environment during their entire lifecyle. Not only during the construction of a building, but also during the occupancy and during possible renovations. At the end of their life cycle, when buildings are re-purposed and demolished, the efffects of a building on the environment are still present. The effects of buildings on the environment needs to decrease. Therefore, investing in more sustainable real estate is needed. The main reason for buildings to affect the environment is that they use energy and water. Besides that, buildings generate waste. Whole Building Design Guide (WBDG, 2016) mentions that “these facts have
prompted the creation of green building standards, certifications, and rating systems aimed at mitigating the impact of buildings on the natural environment
through sustainable design”.
However, before these measures were taken, some obstacled needed to be overcome. To start with, the main players of the commercial real estate sector are four main stakeholders: constructors, occupiers, developers and investors (Cadman, 2000). This thesis analyzes sustainable development for real estate developers and investors, as these parties are the ones who need to supply society with (sustainable) buildings. Examples of required aspects of sustainable buildings can be found in literature. There is evidence from the United States which claims that sustainable buildings have benefits compared to non (or less) sustainable buildings such as
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higher occupancy rates (Cushman & Wakefield, 2007) lower operating costs (Miller et al. 2008) and higher rents (Cushman & Wakefield, 2007, RICS, 2010). For
commercial real estate investors and developers, these are very important drivers to take into consideration as they are directly linked to a property. These are drivers that investors and developers aim for and can be seen as micro level factors. For the remainder of this thesis, these drivers are called ‘property level drivers’.
So although the benefits of sustainable buildings for investors and developers may be known, they do require investments before they can be reaped. This is because it is a certain fact that investments need to be made before an object can become more sustainable or before a sustainable building can be built. However, the outcome of the required investments on the value of a property is not clear as the literature that confronts these issues offers mixed results. (Warren – Myers, 2012, Lorenz and Lützkendorf, 2008).
As with all types of investments, not only the benefits that parties are after are important. There are other, macro level factors, that investors and developers need to take into consideration. To start with, the entire sustainabiltiy debate is caused by environmental concerns because of pollution. The real estate sector plays a huge role in this (World Economic Forum, 2016). Another factor that plays an important role is legislation. As (local) governments worldwide are paying more attention sustainability, legislation that concerns this topic continues to increase. Market conditions that affect the real estate market, such as interest rates and yields are other macro economic factors that need to be taken into account. Technological developments in this particular area have taken a flight the last couple of years. For example, take the possibility to re-use energy in buildings. Social factors are other features that investors and developers take note of. In this case, the opinion of tenants and pressure from society to engage in more sustainable activities has increased (Lützkendorf and Lorenz, 2005). Lastly, financial factors such as tax relieves and green loans are scientifically proven reasons to start investing in sustainable real estate.
As can be seen, there are a lot of factors that need to be taken into account before a decision can be made about whether or not to invest in making real estate more sustainable. As stakeholders will think closely before they decide to do this, the purpose of this research and the research question of this thesis therefore is:
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“What are the most important factors that influence the decision of real estate investors and developers to invest in sustainable real estate”?
The scientific cause of this research a.o. builds on previous research that is
conducted by Falkenbach et al (2010). Falkenbach et al (2010) researched existing literature and reviewed scientific journal articles, conference papers, industry and academic research reports and out of these sources, they classified the drivers of real estate investors for investing in sustainable real estate. Falkenbach et al (2010) explained that their research has some limitations, as it is strongly focused on the US.
The contribution to science of this thesis is that is extends the research
conducted by Falkenbach et al (2010). My research is focused on the North-Western part of the Netherlands on a particular group of small to medium sized firms
(hereafter: SME’s), whereas there are also other legislative requirements and
building codes applicable in comparison with the research performed by Falkenbach et al (2010). Also, my research gathers evidence from a different market in
comparison with the US based conducted by Falkenbach et al, as it focuses on a different geographical area with different firm types and sizes. While their research is based on analysis of various articles, the validity of the theory is based on the
answers given by actual investors and developers in the Netherlands. Therefore, it has the possibility to offer other insights compared to the ones that have already been gathered. On top of that, this research is conducted almost a decade later than the research performed by Falkenbach et al (2010). This research will therefore serve as an extension of previous conducted research.
Another motivation behind this research is that the commercial real estate sector has a large footprint on the environment. Given the fact that legislation on this matter continues to rise, it will be interesting to find out how these stakeholders handle this. Also, this research aims to investigate where the intrinsic motivation to invest in sustainable real estate comes from and to find out if the external factors and property level drivers matter. Will the intrinsic motivation of investors and developers mainly be driven by financial reasons?
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2. Literature review
2.1 Introduction to sustainable development
According to many theories, the idea of making real estate more sustainable comes from the concept “Corporate Social Responsibility” (CSR). This can be considered as part of sustainability or sustainable development. Various researches have been performed regarding CSR. While Ortiz Martinez and Crowther (2005) claim that there is no clear definition of CSR, Dahhlrud (2008) mentions that there are thirty seven definitions of it. Out of these definitions, van Marrewijk (2003) states that “CSR refers to company activities, voluntary by definition, demonstrating the inclusion
of social and environmental concerns in business operations and in interaction with stakeholders”.
Crane et al (2008) describe CSR as a cluster concept, meaning that “it has
been described and defined by various organizations and academics with similarities and wide variations depending on the institutions and players involved”. This explains
the wide variety of definitions and concepts. Subsequently, Sparkes & Cowton (2004) indicate that, arising from CSR, socially responsible investments (SRI’s) have
become a growing part of large investment institutions. These more responsible investment decisions are part of a growing form of shareholder pressure. This shows that, although the definition of CSR mentions that these activities should be
voluntary, they cannot be considered as such. However, both CSR and SRI’s have made a significant contribution in the awareness of sustainable development. According to Aras and Crowther (2007), CSR shares its concern for
sustainability. One important difference between sustainability and CSR, is that CSR is more focused on financial performance. This is underlined by Aras and Crowther (2007), they explain that “CSR is more problematic as it is often perceived that there
is a dichotomoy between CSR activity and financial performance with one being deleterious to the other and corporations having an imperative to pursue shareholder value”.
The literature that specifically addresses sustainable development in real estate, as can be expected in this sector, refers to sustainable buildings. Lützkendorf and Lorenz (2005) explain that sustainable buildings are “buildings that contribute to
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the investments in buildings have the potential to contribute to sustainable
development”. In addition, Lützkendorf and Lorenz (2005) elaborate this further by
developing requirements that buildings have to meet to be remarked as sustainable building. Both are illustrated in table 1.
Figure 1: Lützkendorf and Lorenz (2005): the classification of and requirements for sustainable buildings
Classification of sustainable buildings Requirements to classify sustainable buildings
• Protection of the natural environment / ecosystem
▪ Minimization of life cycle costs / cost effectiveness from a full financial cost-return perspective
▪ Protection of basic natural resources ▪ Reduction of land use and use of hard surfaces
▪ Protection of human health and well-being
▪ Closing of material flows
▪ Protection of social values and of public goods
▪ Avoidance / reduction of hazardous substances
▪ Protection and preservation of capital and material goods
▪ Reduction of CO2 emissions and other pollutants
▪ Reduction of impacts on the environment
▪ Protection of health and comfort of building occupants / users as well as of neighbours
▪ Preservation of buildings’ cultural value
▪ Maximization of the building’s serviceability
▪ Maximization of the building’s functionality
The above classifications and requirements will be explained in further detail in the following chapters.
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2.2 Property level drivers
In paragraph 2.2.1 to 2.2.4, the property level drivers are discussed. Property level drivers are aspects of a real estate object that investors and developers aim for when investing in sustainable development. (Falkenbach et al, 2010). By reading these paragraphs, it becomes clear why investors and developers should want to invest in commercial real estate that has sustainable potential.
2.2.1 Decreased risks
Real estate investors and developers perceive risk differently, yet there are similar factors they both take into account when they analyze the risk they take when investing in sustainable real estate. According to Falkenbach et al (2010), the future obsolescence or lower risk of vacancy of buildings are important factors. These risks are lower for sustainable buildings (JLL, 2008). Looking from an investor and
developer point of view, sustainable buildings are less risky because of “higher costs
associated with the retrofitting of non-sustainable properties, as well as increased cost levels due to reduced targets and increased penalties for gas emissions and energy consumption” (Falkenbach et al, 2010). This means that if investors and
developers invest in making commercial real estate more sustainable, they will not have to deal with these issues later on.
Besides having lower costs, vacancy rates are also an important factor. Fuerst and McAllister (2011) conducted a regression analysis and used control variables such as size, hight, building class and age and investigated the difference in
occupancy rates between non-sustainable and certified buildings. Certified buildings are marked with a certificate with labels. The most famous examples of such
certificates are BREEAM and LEED in the US. BREEAM and LEED are certifications that are only assigned to sustainable buildings that meet the desired criteria. Certified buildings had a higher occupancy up until 8% in this sample. Miller et al (2008) drew the same conclusions, but came up with occupancy rates that were higher up until 4% for certified buildings. Finally, Wiley et al (2010) compared the occupancy rates of certified buildings with a control group. The certified buildings had higher occupancy rates that even went up to 17.9%.
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2.2.2 Decreased property costs
Investors and developers want to run less risk when investing in sustainable
development. As the previous paragraph showed, the literature states that the market is willing to pay rent premiums when sustainable buildings are occupied. Besides this factor, literature also shows that sustainable buildings have lower property costs compared to non-sustainable buildings. Several researches have confirmed this. The first research on this matter was performed by Shiers (1999). This research
compared energy costs of certified buildings with ‘normal’ buildings. Although this sample was not large enough to use control variables as age and building design, results did show reductions in energy use and energy savings went up to even 30%.
Miller et al (2008) found out that certified buildings have lower energy costs per square foot compared to non-sustainable buildings. They analyze their findings based on a sample of 2000 non-sustainable buildings and 643 certified buildings. In this sample, only multi tenant (buildings that includes multiple tenants) and class A office buildings. Besides that, the the sample consisted of properties that were built since 1970, have at least 200.000 square feet and five stories or more.
Other researches used different samples but had similar findings. Turner and Frankel (2008) are an example of this, as they found out that the better the
certification of a building is, the lower the energy use is. Pivo and Fisher (2009) found out that utility savings were about 24 cents per square foot per year for certified buildings. In their regression analysis, location, property characteristics and income per square foot were used as control variables.
The discussion of lower property costs should be conducted between the lessee and the lessor. However, Lucuik et al (2005) argue that the costs and benefits of commercial leases do not take environmental perfomance into account. This causes the distribution of benefits and costs to be uneven between owners and occupiers. Besides that, many lease agreements have fixed rates that do not include the use of water or energy. To improve this situation, Hinnells et al. (2008) suggest to adjust rental contracts to improve and to promote sustainable development in real estate. To make these changes possible, they advise to use two models of rental contracts: light green and dark green lease contracts. These contracts contain the use of green attributes in lease agreements, such as the obligation to supply owners with information regarding energy use. Dark green rental contracts must include
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certain environmental targets and are therefore more strict compared to light green contracts.
Another important factor to take into account is that there are investments to be made in order to make a property more sustainable. In this case the question is if the savings that are to be realized weigh up against the investments. JLL (2008), conducted a survey and found out that 70% of corporate occupiers already assumed that building sustainable properties are more expensive compared to ‘ordinary’ buildings. However, these findings are based on a case study.
Kats (2003) also performed a research on this and interviewed members of senior building personell and architects. Besides interviews with people who were directly involved in building properties, Kats et al (2003) also interviewed members of California’s Sustainable Building Task Force and Green Building Valuation Advisory Group. The construction costs of 33 LEED certified properties were investigated, 25 of these buildings were offices, 8 of them were schools. They concluded that cost premiums needed to be paid, but they were around 2%. They elaborated their findings more extensively and found out that for a bronze level rated building (the third highest rating) an average premium of 1% had to be paid. Silver level buildings required an average cost premium of 2.1% and gold level buildings required an average premium of 1.8%. In this sample, there was only one platinum building, the premium for this building was 6.5%.
Kats also explained what kind of costs caused these premiums. According to his research, the money spent on premiums is mostly “due to the increased
architectural and engineering (A&E) design time, modeling costs and time necessary to integrate sustainable building practices into projects. Generally, the earlier green building features are incorporated into the design process, the lower the costs”. The
research did not indicate how these costs influenced the return on investment (ROI), since it was not part of this research.
In conclusion, while few other authors (Matthiessen and Morris, 2004, 2007) in their research claim that there are no premiums to be paid, most researches have found proof that premiums do need to be paid to build more sustainable buildings, although these premiums do not seem to be that radical.
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2.2.3 Increased property value
The factors mentioned in paragraphs 2.2.1 and 2.2.2 outline the impact of sustainable development in real estate on operating costs, rents, risk and
investments. These factors are all related to the cashflow mechanism of an object. In real estate, altering the cashflow mechanism affects the value of an object. However, as in all markets, not only these factors matter but also the supply and demand for sustainable buildings affect the value of an object. To find out which factors influence property value, Cushman & Wakefield (2007, 2009) not only sent out a survey to tenants, but also to potential buyers of sustainable buildings. In these researches, a total of 47% in 2007 and 44% in 2009 of landlords answered that they were willing to pay a price premium during the time of purchase, if certain sustainable features are applicable. This indicates the first form of evidence that sustainable development does influence the property value in a positive way.
The willingness to pay a price premium indicates that the term ‘value’ is
measured in money. Literature however uses this term in several ways. For players in commercial real estate, the one explanation that explains the term ‘value’ is
created within the International Valuation Standards (IVSC, 2007) and is as follows:
'The estimated amount for which a property should exchange on the date of valuation
between a willing buyer and a willing seller in an arm's‐length transaction after proper
marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.'
The Royal Institution of Chartered Surveyors (hereafter: RICS) (2010) also investigated the reflection of sustainable development in the valuation of an object. They explain in their research that the explanation of the term value is applicable in a perfect market, because that is when all characteristics of a price exchange are reflected accurately. However, because markets are never fully perfect, value will not always be fully reflected into transactional evidence. RICS (2010) therefore explains that the research they conducted was “seeking to establish to what extent
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the studies to date show any reflection of sustainability criteria feeding through to market changes. It was not enough simply that the market should behave in such a way; it was looking for evidence that it did”.
RICS (2010) researched a range of connections that influence the property value, all are shown in the figure below.
Figure 2: RICS (2010): Is sustainability reflected into commercial property prices
RICS (2010) researched the impact of these factors and state that the most direct evidence of a link between a higher value of an object and sustainable development can be found in either or both rents or yields achieved. They have gathered evidence from several sources, the most important one being evidence from transactions. These transactions are all based on occupancy rates, rental levels and sales prices and are founded on previous researches conducted by Miller et al (2007, 2008), Fuerst and McAllister (2011) and Eichholtz (2008). The foundings of these articles have been argued in previous paragraphs. This means that the sum of these paragraphs are the means to an end, these factors must lead to having a higher property value.
Still, research that was conducted later ensured that opinions regarding a higher property value of sustainable buildings remained undivided. Warren-Myers (2012) stated that “without financial justification and viability of the required
investment it is likely that the advancement of sustainability in commercial real estate will be limited”. Valuers play an essential part in this as they are the ones who assess
the market value of objects. However, “currently the lack of empirical evidence,
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sustainability, jeopardise the ability of valuers to provide an informed opinion of market value for both existing and sustainable assets” (Warren - Myers, 2012).
Contrary to the above findings, there are several other researches that claim that they have the gathered financial justification and viability (Kats et al., 2003); (RICS, 2005). Lorenz and Lützkendorf (2008) summarize these findings and state that “it is now generally agreed that sustainable buildings are more cost and energy
efficient, functionally effective, profitable and marketable than conventional buildings and that they exhibit increased functionality, serviceability, and adaptability as well as increased comfort and well-being of occupants while at the same time offering loss prevention benefits, risk reduction potential as well as reduced negative impacts on the natural environment”.
In commercial real estate, rental incomes are the most important factors that contribute to the value of a building. Investors and developers have an interest in ongoing and rising rental incomes. For them, the biggest question is that if they are willing to invest and develop (more) sustainable real estate, would their tenants also want to pay a rent premium because of the obtained sustainable status? Thus, the potential premium that is linked to sustainable properties is one of the key issues when evaluating the economic drivers of sustainable development in real estate. Over the years, several researches have been conducted to find out whether emperical evidence of higher rent levels could be provided.
Cushman and Wakefield (2007), one of the world’s leading valuers,
researched the willingness of tenants to pay a rent premium in the United Kingdom (London) and according to their findings, the occupiers were willing to do so. In their research of 2007, 825 senior executives were questioned on this matter. This study showed that 45% would be willing to pay a rental premium if they could rent a
sustainable building. Cushman and Wakefield performed the same research in 2009 and questioned 750 tenants. At that time, the willingness to pay rent premiums decreased to 39%. Although no reasons have been given for this decline, a possible reason could be the financial crisis that started in 2008. Maybe the priorities of
occupiers shifted during that time. This study further states that out of the tenants that are willing to pay a premium rent, 55% is willing to pay a premium of 1 to 5%, 30% a premium of 6-10% and 2% a premium above 10% (Cushman and Wakefield, 2009). Jones Lang Lasalle (2008) conducted a similar research. However, they sent out surveys on a global scale. Surveys were sent to corporate tenants in Denver,
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Singapore, Londen and Melbourne. Some of the results were similar to the findings of Cushman and Wakefield. 62% of the respondents were willing to pay a premium between 1 and 10%. 8% of the respondents were willing to pay a premium of more than 10%. Contrary to the findings of Cushman and Wakefield, 30% of the
respondents stated they would not be willing to pay a premium rent. A remarkable outcome of this survey was that 4% of the respondents wanted to pay less rent instead of paying a premium.
Valuers are not the only parties that researched the possibility of increased rental income when buildings are more sustainable. Sayce et al (2007) summarize the results of surveys that were performed in 1995, 2000 and 2005. Parties such as surveyors, developers, investors and investment banks were asked about their opinion regarding sustainable development in real estate. These surveys showed that up until 80% of the respondents rental incomes would be affected by sustainable development items withing the following years to come.
Other studies are mainly US based and base their findings on regression analysis of various databases. Fuerst & McAllister (2011) researched the impact of environmental certification, such as ENERGY STAR and LEED, on rents in
commercial real estate. In their sample, which consisted of 24.479 offices, 626 buildings were LEED certified. Next, they used age of a building and location as control variables and compared these to building without a certification. Their
conclusion was that buildings that had one of either certifications, experienced higher rental incomes in comparison with non certified buildings. The premium, which is the amount of higher rent, was around 5%. They conducted this research again in 2009. At that time, the existence of an even better certification level caused premiums to rise up until 6%. Eichholtz et al (2009) conducted a similar research, but had a smaller sample of 8.182 buildings, out of which 694 had LEED and ENERGY STAR certifications. These buildings were compared to other, non certified buildings, that were located nearby withing a quarter of a mile. This research showed lower rent premiums, the highest one being 2.6%. However, they found a difference in rent premiums between the types of certification. The rent premiums of ENERGY STAR certified buildings was maximized at 2.8% while LEED certified buildings did not have any rent premiums at all.
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2.2.4 Productivity gains
According to the research material that is highlighted in the previous paragraph, tenants are willing to pay a premium for buildings that are more
sustainable compared to other ‘non’ sustainable buildings. This behavior must come from somewhere, meaning that tenants must have good reasons why they are willing to pay a premium price for a premium building. A possible explanation for this, is that employees are more productive when they are able to work in a sustainable building. This is something that will also be addressed in paragraph 2.3.5 (Social factors), but is explained more in detail in this paragraph as some researche(r)s have found it to be the most important reason for companies to pay price premiums. However, opinions on this matter vary as some researchers state that productivity gains because of occupying a sustainable building cannot easily be confirmed.
Before 2009, no researches were conducted on productivity gains besides the research performed by Kats (2003). At that time, this research was one of the most cited studies on this topic. However, Kats used a sample of just 33 green buildings. This research indicated that tenants could reach more productivity gains per square foot. Results showed that these productivity gains were reached because less
employees called in sick when they were working in a sustainable building. The main reason for this was that employees worked in a building that for example had better lightning and ventilation. However, researches that confronted this topic were in the primary stages. Kats (2003) researched investments that primarily focused on making a buiding more sustainable. The investments that were researched focused on energy efficiency, water savings, operations and maintenance savings and productivity and health benefits.
Miller et al (2009) expanded the research of Kats by conducting a survey of more than 500 tenants who moved into a sustainable building. Their conclusion was that there is an economic benefit for tenants and thus brings producitivity gains, if they pay attention to the quality of the space they use. Examples of aspects that buildings should possess are good ventilation and natural light. Besides that,
localized temperature controls and appropriate temperature ranges are also found to be an important factor. Miller et al (2009) conclude this by stating that “If you consider
the benefits in terms of recruitment, retention of employees, lower sick time, and greater productivity, tenants should be willing to pay more rent for such space or
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require steep discounts for less healthy space”. On the other hand, Addae-Dapaah et
al (2009) mention that having a green building could merely be used as a recruitment ploy by companies. They question factors such as improved productivity and health as base their findings on the research conducted by Roper and Beard (2006), as they mention that these factors could not be quantifiable. Cannon & Vyas (2008)
summarize these concerns by stating that “accountability is seldom realized for
delivering or operating buildings that meet objective, measurable criteria that are of primary importance to the building owner or tenant”.
It seems that the opinions regarding the increase in productivity in sustainable buildings differ. Some authors claim to have evidence that support findings that sustainable buildings contribute to productivity, while other researchers claim the evidence is not there or is just too limited. Another problem that researchers
encountered was how productivity could be measured. Literature shows a lot ways to measure this, as there are also dozens of factors that can affect productivity. While a measurement of productivity might not pose a problem in some sectors (for example: in callcenters), the work of experts and professionals on the other hand is knowledge intensive. The output of their work cannot easily be quantified. The researchers tried several ways to deal with this issue, one of them was to analyze how to measure productivity in a subjective way. However, these measurement would then ofcourse be based on the subjective findings of respondents.
Haynes (2007a) has reviewed other literature that confronted the challenge to measure productivity. His conclusion was that scholars all use different methods, but none of these methods turned out to be universally applicable. Miller et al (2009) eventually concluded that the follow up paper of Haynes (2007b) contains a measurement style that has a self-assessment approach that is adopted by researchers. This paper consists of a theoretical framework that is validated and measures productivity in offices, but does not contain hard evidence regarding a higher productivity in sustainable buildings.
Besides scholars, organizations around the globe have also performed
researches to find out what factors of sustainable buildings have positive influence on the health, wellbeing and productivity of office users. A recent example of such a research is conducted by the Dutch Green Building Council (2018) (hereafter: DGBC). Based on several case studies that were all performed in the Netherlands, they created a ‘must have’ list that consists of eight factors for offices that have a
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positive influence on its users. All factors are shortly described below. Also, all factors are supported by scientific research.
The first factor DGBC (2018) mentions several aspects that can be controlled benefit productivity. The first one is air quality or rather the use of more fresh air. Case studies showed that a more natural climate control, which is a combination of airconditioning and natural air, increases productivity. Also thermal comfort, which according to DGBC (2018) means that the temperature in the building must be between 20 to 25 degrees celcius, benefits productivity. Any temperature above or below it, creates a downfall of it. Another example is daylight. A right amount of daylight must be able to ‘enlighten’ the building. This also means that offices with a view, preferably on green nature, contribute to a higher productivity.
Acoustics is another factor. A bad acoustic environment leads to a strong loss of productivity. Evans & Johnsson (2000) explain that not having the right acoustic environment leads to stress and decreasing work satisfaction. Having the right acoustic design for every room in the building therefore is essential. This can be achieved by installing absorbent ceilings. Besides having the right amount of daylight and the right acoustics, the interior also plays an important role to improve the
productivity. According to DGBC (2018) people like to personalize their own work spot as “it leads to more comfort, social interaction, creativity and innovation”.
Having a good view, looking at natural sights such as water and air have positive effects on the wellbeing and productivity of employees according to research of DGBC (2018). However, it takes a long time for these research results to be
translated in building schemes, but there already are some positive examples of companies who have such sights. Finally, also the location of an object is very important for office users. If an object is nearby facilities such as supermarkets, train stations, shops and sport facilities, it saves a lot of time and thus makes employees more productive.
2.3 External factors
Real estate investors and developers will, besides looking into the benefits sustainable buildings that are highlighted in paragraphs 2.2.1 to 2.2.4, also take external factors into account if they are to invest in sustainable real estate. In
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paragraph 2.3.1 to 2.3.6, the external factors that affect this decision are explained.
2.3.1 Environmental concerns
Over the last decades, much research has been done regarding sustainability. Sustainability can be considered as the overlapping concept from which all
sustainable activities have derived. In order to get a good picture of sustainable development in real estate, we first outline from where these lines of thought have originated. The concept of sustainability and sustainable development originates from the World Commission on Environment and Development (WCED) in 1987, this is mainly known as the Brundtland report. The central question in this report was “how
can the aspirations of the world’s nations for a better life be reconsiled with limited natural resources and the dangers of environmental degradation”? The broad answer
to this question according to WCED (1987) was: “development that meets the needs
of the present without compromising the ability of future generations to meet their own needs”.
This shows that on one hand, the report was about aspirations and
motivations of mankind to have a better life while on the other hand, the report was concerned about the limitations and consequenses for nature because of these aspirations. This vision is also reflected by Wiersum (1995), he explains that the concept of sustainability comes from forestry. Because, in forestry, you should never harvest more than what the forest yields in new growth. Other researche(r)s on this matter can provide more specific answers on what must be done to achieve the equilibrium status of sustainability, as much research has been done about this on a worldwide scale.
For example, Porritt (2000) explains that sustainability can be achieved by satisfying four conditions:
• Finite materials (including fossile fuels) should not be extracted at a faster rate
than can be redeposited in the Earth’s crust;
• Artificial materials (including plastics) should not be produced at a faster rate
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• Biodiversity of ecosystems should be maintained, whilst renewable resources
should only be consumed at a slower rate than they can naturally be replenished;
• Human reeds must be met in an equitable and efficient manner.
As researches have shown, we seem to be well aware of what needs to done to become more sustainable. However, theory also mentions why we are still unable to do so. Holmberg & Robert (2000) describe the sustainability issue. They explain that because of the extraction of substances from the litosphere, produced goods are systematically increasing. On the other hand, this causes that the long term
productivity and biodiversity of the litosphere declines. This automatically means that our resource potential is systematically decreasing. While this is happening, the population of the Earth is increasing, causing more shortages in our resource potential.
According to the World Economic Forum (WEF, 2016) the real estate sector uses more energy than any other sector on a worldwide scale. While these numbers continue to rise on a yearly basis, the WEF suggests that according to estimates the real estate sector is also the greatest contributor and pollutant of CO² contributions. Furthermore, the WEF provides the following numbers:
- The real estate sector consumes over 40% of global energy annually; - 20% of total global greenhouse gas emissions originate from buildings; - There is a projected 56% increase in building CO² emissions by 2030;
- A 7% increase in proportionate share of global GHG emissions is expected by
2030;
- Buildings use 40% of raw materials globally (3 billion tonnes annually). The United States Green Building Council (USGBC, 2009) add to these figures that the built environments accounts for over 38% of total carbon dioxide emissions. However, Mateus & Bragança (2011) state that “due to an increasing
awareness of the effects of the contemporary development model on climate change and the growing international movement towards high-performance/sustainable buildings, the current paradigm of building is changing rapidly”. This shows that the
world is starting to realize that something has to done about the numbers that the WEF presented. The increasing awareness could cause the real estate sector to
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make large contributions to a more sustainable society. This sector therefore could pose a huge upside potential by realizing a significant reduction of energy emissions. By making this sector more sustainable, it could serve as an accelerator and an example for other sectors to follow.
Several researches have been conducted that state that environmental concerns make investments in sustainable real estate a necessity. Literature has highlighted the (dis)advantages that (non)sustainable real estate brings to the (local) environment. These researches, as mentioned above, have been conducted on a large scale, although they all show similar results and conclusions. These researches have highlighted the importance and especially the necessity to invest in sustainable real estate. Therefore, environmental concerns affect the willingness to invest in sustainable real estate.
2.3.2 Market conditions
Market conditions in commercial real estate have a major impact on the success rate of real estate investors and developers. The most infamous example of these market conditions occurred in 2008 when the financial crisis hit every sector worldwide. As the real estate market is a cyclical market, the demand for real estate gradually rose from 2013 onwards. Because of the rapidly increasing demand for real estate, initial yields (rental income of the first year divided by the price of an object) for every asset class started to decline (JLL, 2017).
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JLL (2017) also indicated that the confidence in the Dutch economy has grown
considerably over the last couple of years. They expect that the foundation of the Dutch economy remains strong in 2018, whereas the buying program from the European Central Bank (ECB) will not yet have an effect on the real estate market. This means that financing rates will remain at their current height on the short term. This foundation causes that the Dutch real estate market remains attractive for many (inter)national investors. Subsequently, the ongoing interest of many investors in Dutch real estate causes pressure mainly on Amsterdam as the supply of real estate there is becoming increasinlgy scarce. As a result, the investors turn their attention to other regions such as Utrecht, The Hague and Rotterdam. JLL (2017) expects that because of this, prices in these regions will also increase, which ultimately will cause investors to shift their attention to other areas. In the current investment climate it becomes clear that in other areas besides Amsterdam, attractive returns can still be realized without having to pay increasingly higher prices. An additional benefit of investing in other regions, is that these still hold rental growth potential, whereas this potential in Amsterdam has reached its peak (JLL, 2017).
The findings of JLL are endorsed and confirmed by Cushman and Wakefield
(C&W, 2018). C&W also registered the findings and put them in numbers. They have offered a fact sheet in which regional and national developments in the office market and industrial spaces are pictured. Every research is data driven and based on transaction of the past 6 months. In all fact sheets, C&W compares several aspects, such as availability, stock, vacancy and rents to a year before. Their latest research showed the following findings:
Figure 4: Cushman and Wakefield (2018) Fact sheets office property market
C&W also researched gross initital yields troughout the Netherlands and split
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Figure 5: Cushman and Wakefield (2018) Fact sheets office property market – The Netherlands
C&W also found out that average rent levels in Amsterdam and surrounding areas have gone up in 2017 compared to 2016, whereas the average rent levels in most of the Netherlands have stayed the same or just barely increased. Lastly, gross initial yields continued to decline in 2017 in Amsterdam.
Figure 6: Cushman and Wakefield (2018) Fact sheets office property market – western region
Although it may seem that everything in real estate is going well at the
moment, not all economic signals are green. A sector closely related to real estate, is the construction sector. Because of the current economic prosperity, there are signs of an overstressed market. At the moment, building production in the Netherlands is just slightly under the previous top level of 2009 (ABN AMRO, 2018). It is expected that the sustained growth causes the building production to rise above the level of 2009. This explosion of growth brings challenges.
Several construction companies do not have enough capacity to keep up with
the increasing demand. These shortages cannot be solved easily. The Economisch Instituut voor de Bouw (EIB) expects that between 2016-2022, almost 64.000 new employees must be hired in the construction sector (ABN AMRO, 2018). Part of this is because of the aging workforce of construction companies. This shortage of staff
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could become a structural problem if other solutions are not found. This shortage of staff is the classical example of supply and demand methodology, since the demand currently greatly exceeds the supply, prices rise. The longer this process goes on, the greater this problem becomes. Another problem is that because prices are so high at the moment, several construction companies had to declare bankruptcy because the construction costs went up too fast. Construction companies accepted projects based on calculations and prices of several months or even years ago. As materials and (sub)contractors have become increasingly expensive, the costs of projects
sometimes greatly surpass the calculations on which a project is based. These are threats that real estate investors and developers have to cope with, as they directly affect their business.
Besides the threats mentioned above, there are also opportunities that the real
estate and building sector can both embrace as there are millions of homes, offices and other buildings that need to become more sustainable. The population of the Netherlands is aging. People will want to be able to live longer in their homes instead of moving to a nursing home. Other trends are that younger people drive less cars, which leads to needing less parking spaces. These factors cause a change in infrastucture. Lastly, homes that have already been built need te become more sustainable. (ABN AMRO, 2018).
As pointed out by the research of JLL (2017), there currently are market
circumstances (low interest rates, decreasing yields) that cause the willingness to invest in real estate to rise. Although this does not necessarily mean that the
willingness to invest in making real estate more sustainable rises as well, it is safe to argue that the factors mentioned by JLL (2017) that cause investments in the
overarching concept of real estate to rise, involve investing in making real estate
more sustainable as well.
2.3.3 Technological developments
The previous paragraphs informed you about the increasing degree of
environmental concerns and legislation that puts pressure on the real estate market to make buildings more sustainable. As the next paragraph will show, not only (local) governments will apply sustainability rules more strictly, but the public also demands
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that buildings make a green contribution to their nearby surroundings. In order for this to happen, a lot of technological developments have arisen that will help to achieve this goal. But what makes a building efficient? According to Baum (2017), buildings need to be in the right location so it can fit its purpose. He mentions that “the basic
building service inputs (air, water, power and transport) and outputs (emissions, sewerage, and refuse) need to be consicously managed for the health and well-being of the building, its tenants and the local community”. For buildings to meet their
purpose, a couple of technological developments will be presented. These
development are in the early stages, but present a good view of the benefits they offer.
When it comes to energy efficiency, there already are ongoing developments that are emerging but are not fully integrated yet. For example, think of the possibility of a real estate developer / owner to generate power within the building itself. This way, the middleman (the utility company) can be cut out. On one hand, this brings the benefit of having a more efficient market for space and energy. On the other hand, this poses a challenge for the owner as he now will be concerned to limit the energy that is used by the tenant. This requires the development of a system to save energy. The saving of energy also requires an investment in the right materials and software to monitor the energy use of a tenant. The level of energy use must be made
transparent between the owner and the tenant.
Baum (2017) explains that especially traditional offices leases “largely
continue to fail to achieve the internalisation of energy saving in office management”.
To solve this problem, different lease agreement, more intelligent ones, need to be developed. These lease agreement must contain information about efficient energy supply and energy monitoring. Baum (2017) mentions this as an essential part because “the root driver of change – an increased need for energy and telecoms to
supply the users of technology – will require developers to make buildings more energy efficient, to satiate the hunger for space to support the new tech world and to be much more creative in leasing practice”.
To achieve the above, the real estate market needs buildings that combine technology with space, these are known as smart buildings. On a worldwide scale, there are examples of large firms that already have similar buildings. The
headquarters of Facebook in California and the European Headquarters of Google in London are the most famous examples of this. Baum (2017) mentions another major
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benefit of smart buildings, as these buildings are also green and therefore
sustainable. Efficiency and sustainabiltiy go hand in hand, therefore these terms are often used interchangeably. The biggest benefit is that “there is a continuing drive to
ensure that buildings are performing with minimal waste to balance what is used and what is expelled. It is implicit that smart buildings are both clean and environmentally friendly, while supporting the long-term use of the asset for its occupants or purpose”
(Baum, 2017).
As can be seen, technological developments that can contribute to make real estate more sustainable are developed rapidly. The greatest benefit of technological developments is that buildings can for example be much more energy efficient and environmentally friendly. Literature clearly shows that investors and developers are willing to invest in sustainable development, based on technological developments alone as these developments offer the benefits mentioned above.
2.3.4. Legislation
Theory states that legislation is the greatest contributor to sustainable real estate. Sayce et al (2007) explain that legislation and regulation has a top down cause, meaning that laws and regulations are made by governments. Furthermore, over the last two decades the development of regulations has clearly accelerated as it shows little sign of slowing down. The legislative and regulatory requirements that are made by governments around the world affect every stakeholder (developers, investors, constructors and occupiers) in the real estate business. This implies that every stakeholder will notice the effects of these measures sooner or later as these ultimately have sole aim of protecting the environment we live in.
The factor of the highest importance that comes out of these legislative and regulatory requirements concerns energy efficiency of buildings (Sayce et al, 2007). This started in 2002, when the “Energy Perfomance Building Directive” (EPBD) was published and operationalized. This is a European guideline that aims to stimulate improved energy performance of buildings in the European Union (EU). The
improved performance must take several factors into account, such as climatic and local conditions outside the building, the demands for indoor climate and cost-effectiveness.
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A direct effect of the EPBD are the nowadays well known Energy Performance Certificates (EPC’s). In the Netherlands, these are known as energy labels. Although the EPBD introduced EPC’s in 2002, most member states of the European Union required the EPC by 2008. When buildings are constructed, sold and rented out, having an EPC is mandatory. An EPC rates a building based on its energy effiency of the thermal exterior and its installations. An issued rating can vary from A to G, the latter being the most inefficient rating. An additional benefit of the EPC is that it can contain recommendations regarding energy efficiency improvements and, in some cases, it can render possible cost savings for a particular building.
Petersdorff et al (2006) explain that the EPBD applies when the total floor of a building size exceeds 1000 m2 and an investment exceeds 25% of the building value. One other criteria for EPBD to hold is that 25% of the building is subject to renovation. This type of legislation continues to expand, as Parnell et al (2005) show that legislation in this area orgininated in 1990. Between then and now, over twenty different types of legislations and policies were constructed on a worldwide scale. An example of this expansion took place in 2003, when EU members were required to renew EPC’s for eligible buildings every ten years. In public buildings, the certificate must be clearly visible for everyone to see. This must be repeated whenever there is a change of tenant or owner of the building. Moreover, Lützkendorf and Lorenz (2005) explain that “the certificate must include references to building’s current
energy performance, current legal minimum standards regarding energy performance as well as recommendations on how the building can be improved to meet these standards of necessary”.
Having an EPC as an instrument was considered to be a powerful tool
“allowing economic agents to estimate costs in relation to energy consumption and efficiency”. (Commission of the European Communities, 2008) Another benefit of
having an EPC is that it is accessible and commonly available. In addition, Parnell et al (2005) mention that it was expected that EPC’s would play an important role to transform the market. For example, by having the information that an EPC provides, it was thought that consumers would take energy efficiency as a part of their decision into account when buying a property. This would result in another benefit, namely how the energy performance of people’s homes can be controlled. Murphy (2014) researched these theoretical benefits and concluded, based on her surveys executed in the Netherlands, that the influence of an EPC is weak before and after acquiring a
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property. Based on this research, it can be concluded that EPC’s have not produced the desired effects, although these findings came from the housing market. Still, the ‘Rijksdienst voor Ondernemend Nederland’ (RVO) mentions that from the year 2023, offices that are bigger than 100 m² must at least have EPC label C in the
Netherlands. If owners cannot show that their offices has this EPC label, then it is possible that owners are not allowed anymore to rent out their office space.
The legislations as previously mentioned gradually find their way to provinces and municipalities. Lützkendorf and Lorenz (2005) state that this is because of the EU’s goals “to achieve an area wide realization of sustainable construction and
therefore suggests to incorporate the concept of sustainability into national building codes and regulations”. Besides that, the EU encourages its members to make
sustainable development an important part of tendering procedures. This means that when municipalities write out a tender for new buildings, a considerable amount of detail of the candidates must be focused on sustainable development.
In conclusion, it can be stated that sustainable development arises from legislations and regulations made by (local) governments. The legislation measures mentioned above ensures that investors and developers need to take compulsory matters to invest in making real estate more sustainable. This causes that the willingness to invest is imposed on investors and developers.
2.3.5 Social factors
The last two paragraphs showed that legislation plays a huge role in making real estate more sustainable. In addition, the technological developments in this area continue to grow. Besides these external factors, the demand for sustainable ‘green’ real estate also rises. According to previous research, this has several reasons. The first one is that by ‘going green’, companies want to build up their reputation as this is part of their CSR. The main reason why this is happening is that being sustainable matters to customers (Nelson and Rakau, 2010). Firms also see sustainability as a potential and important product differentiator in their respective fields. By applying more green methods, these images reflect on the image of the firm and wil hopefully create goodwill among customers and clients (Nelson and Rakau, 2010). In other words, part of social sustainability is about ‘going green’ and about improving
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reputations, but it has its benefits for the environment.
In real estate, the clients are mostly tenants. In this group, preferences are shifting, which means they aim to use the buildings they occupy to express
themselves. This way they try to communicate their vision to their stakeholders. Ciochetti and McGowan (2009) explain that tenants explicitly ask for energy efficient space. Tenants like this are usually firms with SRI goals such as financial insitutions, government agencies and technology firms. These companies are convinced that recruiting employees is not enough, retention of personell is also important. Ciochetti and McGowan (2009) state that this is part of having a healthy an sustainable work environment. In certain industries, like the technology and biotech sector, people spend lots of hours of their time at work. Therefore, having a building with meets their demands is essential as “a firm’s most expensive and valuable asset” (Ciochetti and McGowan, 2009). Therefore, market demands are an important reason for real estate investors and developers to start with investing in sustainable real estate.
Nelson and Rakau (2010) elaborate this further and state that companies do not only aim to improve their image because of their clients, but also for their
personnel. They state that knowledge workers take a firm’s record on social issues into account when considering their employment choices. Nelson and Rakau (2010) also explain the start of sustainable reporting, which can be considered as a part of CSR, started in the year 2000. Nearly twenty years later, most large firms around the globe have adopted this way of reporting in which they explain their sustainable activities of the past year. It seems that CSR creates a link between the reputation of a firm, employer attractiveness and social performance. This appears to be the case, as is pointed out by Margolis and Walsh (2003). However, this clear link is based on case studies.
Lützkendorf and Lorenz (2005) have also researched social factors and state that not only firms who occupy buildings need to conduct in social behavior, but the buildings must lend themselves for companies to engage in social behavior. They mention criteria that buildings must possess in order to improve the social
performance of it, these criteria do state the obvious but nevertheless are important. They also explain how these factors can be measured. Firstly, a building must be designed to take the health of its occupants into account. Also, the comfort and well being of users should also be tested on a regular basis. They also state that the safety, which can be measured by analyzing the number of building related accidents
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contributes to the social performance of a building. Another feature, indoor air quality, is easy to measure. Lastly, the comfort and well being of neighbors and cultural value should be guaranteed at all times to ensure a high social performance of a building. To summarize the social aspects of single buildings, Lützkendorf and Lorenz (2005) state that the most important aspect is productivity increase of personell. Besides this, also comfort, security, user satisfaction and health are important social factors that contribute to a more sustainable world. (IVSC, 2007)
As mentioned in this paragraph and as showed by literature, social factors (the most important one being market demand) on itself clearly are important factors for investors and developers to increase their willingness to invest in sustainable real estate.
2.3.6 Financial factors
While environmental factors that influence sustainable development are focused on the environmental consequenses of a particular building and its nearby surroundings, financial factors influence the stakeholders (developers, investors, constructors and occupiers) that are active in the real estate field more directly. The environmental factors are attributes that must ensure a more sustainable world in the long run. Economic factors however, are key attributes that must lead to this desired status by granting financial incentives on the short term. Luckily, the European Union (EU) does not only express its environmental concern but also suggests to facilitate several financial incentives for sustainable buildings (Lützkendorf and Lorenz 2005). The first incentive that the EU proposes is lower taxation or tax relief, but this instantly proves to be a tough nut to crack, as is explained by the “EU Expert Working Group Sustainable Construction Methods & Techniques” (2004). They argue that having a more sustainable building has a positive impact on the environment and on the local surroundings of the building. It therefore contains added value, but this added value may incur additional costs that the market is not willing to pay for. The working group emphasizes the importance of “adaption of taxes and all other
regulatory mechanisms at global, regional and local political levels need to be adapted (transformed into incentives) and used to help motivate the actors in
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by allowing this, the extra costs of sustainable measures will be reduced. Parties involved will therefore be encouraged to do more research and development on sustainability. To incentivize even further, the EU also proposes to put a heavier fiscal burden on non-sustainable buildings.
In the Netherlands, the Rijksdienst voor Ondernemend Nederland (RVO) is responsible for running a tax friendly program. This is known as the “Energie
Investeringsaftrek (EIA). Several firms, such as ‘normal’ companies, assocations or foundations can qualify for these tax benefits if they invest in energy efficient
processes and sustainable energy with the so called Energy Investment Allowance (EIA) scheme. Overall, this scheme gives firms an average benefit of 13.5%. The additional benefit is that these firms can ensure lower energy bills because they can realize low energy investments. Companies receive a tax deduction for generic but also for tailor made investments that generate substantial energy savings. In total, companies can deduct 54,5% of their fiscal profit which can be added to the usual depreciation.
Another incentive of the EU is what Lützkendorf and Lorenz (2005) describe
as “favourable banking products and of advantageous interest rates for lending
purposes”. While little scientific research has been done regarding this matter, the
market in the Netherlands (banks and other large financial institutions) has
responded well. For example, several banks in the Netherlands have a “green fund”
(https://www.rvo.nl/subsidies-regelingen/regeling-groenprojecten/voorwaarden-regeling-groenprojecten/banken-met-een-groenfonds). A green fund is fed by savings from private individuals. In return for putting money on ‘green accounts’, these clients pay a lower tax rate. By taking money out if this fund, banks can lend money at lower interest rates. However, banks are only allowed to lend money if a client needs financing for a project that has a positive effect on the environment. Clients can only borrow money out of a green fund if they have a green certificate. This certificate can only be requested by the bank, clients themselves cannot request a green certificate in their own. A green fund can be considered as a specialized fund for sustainable construction.
In addition to the mentioned governmental incentives, existing literature mentions that the demand for green buildings by constructors, investors and developers is mainly financially driven. RICS (2012) typifies the need of these
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efficiency. For tenants, the main financial reason to occupy a green building is because of increased productivity of employees (Miller et al. 2009). Furthermore, RICS (2012) expects that the characteristics of a building (age, storey, amenities, renovation) will cause rental prices to be higher. This means that the younger, taller and renovated a building is with amenities, the higher the rental incomes will be. RICS (2012) furthermore adds that contract features of tenants contracts will also be of significant importance.
The previous paragraph referred to the social factors regarding sustainable development in real estate. (IVSC, 2007) summarized that comfort, security, user satisfaction and health were the biggest contributors of having creating social sustainability. Lützkendorf and Lorenz (2005) add a financial consequense to these factors. They explain that (at least in Germany) tenants gain stronger bargaining positions because the mentioned factors influence the tenants turnover rates. In other words, if buildings are not able to produce the desired factors, the the owners run the risk of losing tenants. If this happens, it directly effects the income of the owner.
The technological development mentioned in paragraph 2.3 typically cause long term advantages for the environment. However, firms need to be triggered financially if they are to invest in these technological developments. For many
stakeholders in real estate, the biggest benefit is that by saving energy money can be saved as well. Nelson and Rakau (2010) emphasize that “for many firms there is no
greater motivator than the financial bottom line”. They mention that the energy
savings of sustainable buildings can be 30% over conventional buildings. The operating costs will therefore also decrease. Before building efficiency and the
subsequent costs surrounding it were part of a real estate investment decision, it took time for these factors to be involved. However, when it turned out that these factors were important, it gave the stakeholders a motive to build energy efficient buildings. The financial benefits that it contain were a key factor for making these decisions. When it became clear that stakeholders such as developers and investors had these motives for building sustainable real estate, they were able to ‘use’ the lower energy costs to get higher rents and better returns. The Green Building Council (2015) adds to this that “a more powerful connection is made if and when energy costs and rent
and bundled together in one payment”. This means that if a building owner charges a
