2014 US Occupier Survey: The Corporate View Of Sustainability

2014

US OCCUPIER SURVEY

THE CORPORATE VIEW OF SUSTAINABILITY A Corporate Occupier & Investor Services Publication

2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

1

Overview

There can be no doubt that sustainable real estate practices have become commonplace for any occupier that leases, owns, or operates corporate facilities. While the emphasis placed on sustainability varies by organization, and is often tied to larger enterprise goals and objectives, a discussion about corporate social responsibility (CSR) takes place with almost every occupancy decision made today. Businesses large and small realize the benefits of being “green.” They know that reducing energy use can translate into real cost savings and projecting an environmentally responsible image enhances their brand.

But, how are today’s corporations approaching sustainability from an organizational perspective? And, how is being “green” impacting their business and real estate policies?

Report Contributors

RICK CLEVELAND

Managing Director, Research & Strategy Corporate Occupier & Investor Services

In its latest client survey, Cushman & Wakefield conducted in-depth interviews with 27 real estate and sustainability directors at 23 leading US-based corporations to determine how being sustainable impacts their corporate real estate (CRE) policies. The feedback and results provide insight into how CRE approaches sustainability and the effect it is having on real estate trends.

Participants Adobe AIG Capital One CIGNA Cisco Ericsson Ernst & Young The First American Title Corporation JP Morgan Chase LinkedIn MasterCard MetLife

Mondelez Morgan Stanley Pfizer PG&E Salesforce.com Sun Life Financial Symantec UBS Unilever United Technologies WellPoint

ERIC DUCHON

Director, Sustainability Strategies Corporate Occupier & Investor Services

Industries

Scope

Banking / Financial Services

690 million

Healthcare Consumer Products & Services Technology Advertising / Communications

total square feet

30 million

square feet average per participant

2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

2

K E Y F I N D I N G S A N D R E S U LT S The results of this survey are grouped around four themes:

One.

Two.

Three.

Four.

Sustainability’s influence on the corporation

Sustainability’s effect on leasing

he impact of sustainability T on CRE policy

The occupier and owner viewpoint 2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

3

One.

Sustainability’s Influence on the Corporation

Shareholders Are Pushing Sustainability

Energy Usage Has the Most Impact

17

Energy Efficiency

4

Occupant Health / Safety

Whether it’s reducing costs, improving productivity, gaining market share, or recruiting and retaining talent, today’s corporations struggle with a myriad of overarching goals, objectives, and mandates.

Responses to our survey indicate that corporations remain intensely focused on sustainability and CSR, and that a large part of going “green” is driven by the ability of sustainable real estate practices to assist the corporation in achieving many of its goals and objectives.

3

Carbon emissions

3

2

Water Use

2

Proximity to Public Transportation

2

Cost Savings

Recyling

91%

report that shareholders are pressuring them about their approach to sustainability. More than 75% report that the pace in which shareholders are asking about sustainability has increased.

“ We look broader than just stockholders across our value chain; we have a lot of interest and pressure to be sustainable.”

63%

of respondents stated that energy efficiency has the greatest impact on the corporation and is the primary driver of their sustainability efforts.

“ Energy efficiency without a doubt, as it transfers directly into dollars.” * Sound Business Practice, Building Systems, Company Image, and LEED Certification all ranked at one response.

2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

4

Two.

The Impact of Sustainability on CRE Policy CRE organizations must determine how to respond to the increasing pressure for sustainable real estate and the policies needed to best support the Company’s sustainability goals. Most CRE executives realize the important contribution sustainability makes and the more progressive CRE organizations are leading the sustainability charge within their companies.

Most CRE Organizations have Governance Policies for Sustainability

95% 66% Of those,

of respondents have or are planning a sustainability policy that governs CRE.

are driven by overarching corporate objectives

100% Report to CDP

33%

and are specific to the corporate real estate group.

Respondents were asked if they have a sustainability policy that governs corporate real estate and what is driving that policy.

Over 70% of organizations have an existing policy, with 25% actively planning to implement a policy governing CRE. Of those with policies, 66% indicated that those polices were established as the result of top down corporate mandates.

“ Our sustainability metrics are publicly reported in our annual report, positioned right next to the financials.”

100% CDP, formerly known as the Carbon Disclosure Project, is a global organization that works with shareholders to measure and reduce greenhouse gas emissions. Survey participants expressed several recurring themes for the significant increase in CDP reporting, including: stakeholder pressure, better transparency and internal employee pressure

“ The push for transparency, peer pressure and the threat of bad publicity are drivers of CDP.”

2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

5

Other respondents rely on their brokers, architects, and engineers for this evaluation.

Only 35% of respondents report having minimum performance standards around energy, water, and waste. While this seems to contrast the momentum for sustainable real estate, it should be noted that 65% report that they do evaluate the sustainability potential of new sites and locations.

Successfully done this in the past

66%

Of those use a consistent methodology.

Have not yet tried but want to in the next 1-3 years

of respondents evaluate the sustainability of new sites.

Don’t know

65%

Few Occupiers Have Assessed Risks of Not Being Green

Discussed internally but no attempt yet

The Impact of Sustainability on CRE Policy

Minimum Performance Standards are Not Prevalent

Unlikely to attempt to do this in the next 1-3 years

Two.

7 2 6 3 5 When asked if they have attempted to assess the risk to the corporation of not being green, both quantitatively and qualitatively, more than half stated they had not yet attempted to quantify the risks. Five organizations had quantified the risk of not pursing sustainability, mostly in terms of increased energy consumption.

“ We have not done that “ Do we consider it? Yes, but its consistently yet…where we have qualitative not quantified.” a larger presence we try to do that.”

2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

6

Three.

Sustainable Space Seen as More Valuable

Sentiment is Mixed on Sustainability’s Contribution to Higher Rent

Sustainability’s Impact on Leasing Most lease negotiations, particularly those with large corporate occupiers, involve a discussion around sustainability and CSR obligations. Survey results indicate that, at least in the near-term, sustainability will continue to impact leasing trends and influence real estate market trends.

Respondents indicated that interest in sustainability is strongest in prime markets and “gateway cities”, where employees place a greater emphasis on the corporation’s approach to CSR.

48%

indicate a more sustainable building can command a rental premium in some markets.

74%

of respondents indicate a value differential between going to a sustainable over a nonsustainable building.

88%

Of those, believe sustainable space results in reduced occupancy costs.

The majority of respondents see the value differential to be in reduced occupancy and operating costs, with 50% identifying value in terms of reduced absenteeism, and greater employee retention, health, and recruitment.

39%

But only are willing to pay a “sustainability” premium

Respondents were asked if they agreed with the anecdotal evidence that a more sustainable building can command a rental premium in some markets. Results indicated that Class A office space in prime city locations is where evidence of a rental premium for sustainability is most likely.

“ A sustainable building is “ We pay a premium to be in inherently more intelligent and modern buildings, part of that easier to operate either through is ecology and part energy, but reduction in regular maintenance nobody goes into a site on one or occupant comfort calls.” dynamic” 2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

7

Three.

Sustainability’s Impact on Leasing

More Than 50% Cite Poor Sustainability as a Factor in not Selecting a Location

Most Occupiers Build Only Green

92%

of respondents indicated that they build new properties and offices to a sustainable standard.

More than half of those surveyed stated that they evaluate the potential sustainability of a new site and that the sustainability performance of a property is a factor. However, most indicated that sustainability does not dictate the decision to locate in a particular market.

“ Location is the primary driver, all those things being equal, we would definitely pick the more sustainable building.”

35%

However, only set minimum performance standards around energy, water, and waste that affect their site selection or day-to-day operations.

Transformation of Existing Space will be Slow

40%

Only

indicate that they are allocating funds to improve the sustainability performance of existing office space, implying that many are likely to address sustainability when renegotiating leases or undertaking a move.

2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

8

Four.

The Occupier and Owner Viewpoint In October 2013, Cushman & Wakefield surveyed 25 leading investors on the role sustainability played in their investment decisions. When examining the results of that survey, with those from our current survey, both occupiers and owners appear to be facing similar challenges. Demand for sustainable properties from stakeholders on both sides is strong and occupiers and investors are both developing internal policies to address sustainability in their organizations. However, occupiers and investors struggle with quantifying the premium being applied in the market for sustainable property.

Stakeholder Demand OCCUPIER

OWNER

91%

80%

91% report strong demand from shareholders for sustainability policies

80% reported that their investors are driving them to invest in sustainable properties

Value Contribution OCCUPIER

OWNER

63%

92%

63% ranked reduced energy costs as contributing the most value to sustainability practices

92% ranked energy efficiency as the biggest factor in pursuing sustainability

Organizational Response OCCUPIER

OWNER

95%

72%

95% have developed internal governance policies around sustainability

72% of investors surveyed had established sustainability policies at the investment Fund level

2014 US OCCUPIER SURVEY: THE CORPORATE VIEW OF SUSTAINABILITY

9

Where do we go from here?

Sustainability strategies continue to be a driving force in real estate. CRE has clearly embraced Corporate Social Responsibility.

Occupiers in the Fortune 1000, as well as those in high-growth industries such as technology, life science, and healthcare, are more focused on establishing formal CSR policies, due in large part to the increasing pressure they receive from stakeholders and employees. Evidence proves that sustainable buildings are more efficient, and that translates into cost savings for any building operator.Yet, quantifying the risks to an occupier of not being green or the value contribution beyond energy savings remain open questions.

There is a clear general perception that sustainable properties cost more.Yet, LEED certification alone has not been directly correlated with this market premium; a number of other factors such as location, amenities, age, etc contribute.

As buildings and tenant spaces become more energy efficient, it remains to be seen if sustainability will remain a distinguishing factor, or if it evolves to become common industry practice.

REPORT CONTRIBUTORS RICK CLEVELAND CIS Research & Strategy rick.cleveland@cushwake.com

ERIC DUCHON CIS Sustainability Strategies eric.duchon@cushwake.com

CIS CONTACTS JOHN SANTORA President and CEO, CIS john.santora@cushwake.com

MARK WANIC Americas Head of Occupier Services mark.wanic@cushwake.com

Cushman & Wakefield (C&W) is known the world-over as an industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends, markets around the world and business issues of the day, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position. In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis, C&W also provides customized studies to meet specific information needs of owners, occupiers and investors. Cushman & Wakefield is the world’s largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world’s major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and management assignments. Founded in 1917, it has approximately 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.

This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Š2014 Cushman & Wakefield, Inc. All rights reserved.

New York - World HQ 1290 Avenue of the Americas New York, NY 10104-6178 United States www.cushmanwakefield.com