Green office spaces are central to this, but it’s not only their eco-friendly nature that is attractive to companies. A recent report by real estate advisor CBRE found that buildings that meet Environmental, Social and Governance (ESG) standards now command 21% higher rental premiums.
The mix of environmental benefits and profitability is a potent one for businesses and governments alike, and explains why we may be about to see green office buildings dominate the business sector in Europe.
Higher rental premiums
The demand for eco-friendly investments soared following the pandemic, and investors now use ESG criteria to judge the sustainability of a business before buying. Buildings are a big part of any land-based business’s operations, so it’s important that they meet these standards.
In some sectors, the transfer to internet operations has been relatively smooth. Many shops have closed their bricks-and-mortar premises to set up online retail outlets, while energy-consuming land-based gambling venues are finding success creating popular online casinos: for other businesses, it’s not quite so simple.
Those that need physical building space are finding that they need to ‘go green’ to keep up with environmental standards. The benefits of this are clear, according to the CBRE report: operating costs are lower, employee productivity is higher and the company also enjoys an enhanced public reputation.
Another benefit – or negative, depending on if the business owns the building or not – is a higher rental yield for green offices. The report found that this is as much as 29% higher than non-certified properties in Copenhagen, with the average settling at around 21% across Europe.
The report predicts that ESG-certified buildings will continue to grow in demand over the next few years as businesses prefer to be seen as environmentally-friendly.
Higher selling price
It’s not just rental yields that grow thanks to green certification. A 2020 study found that meeting these standards adds an 19% price premium (on average) to buildings in Finland, France and Germany. This premium tends to increase the further building is away from the city centre, although the effect lessens in popular locations like Berlin and Paris.
As green developments in Europe are relatively recent, their share of the property market is growing all the time. 35% of EU buildings are over 50 years old, and more eco-friendly alternatives are likely to replace them over the next decade.
Businesses, then, will continue to seek these spaces, attracted by their lower costs and benefits for employees. Demand will continue to keep pace, if not stay ahead, of building rates, meaning prices are likely to keep their premium.
Better for employee health
The trend towards green offices is boosted by their proven benefits to employee health.
A report from the World Green Building Council found that increasing natural light, introducing plants and improving air quality had a dramatic effect on employees. They are less likely to take days off, claim company health insurance, and experience slumps in productivity.
Protecting employee welfare also has obvious cost benefits to business. Healthy workers are much more efficient, less likely to leave the company or cost money through missed work days.
While it might be expensive to implement these measures, especially to meet the strict ESG requirements, the benefits make it worth it in the medium to long term.
Help meet national emission targets
Pressure from the authorities is likely to be another factor in the drive towards greener workspaces in Europe. The ‘World of Work’ was a key theme at the recent Cop 26 climate conference where world leaders spoke about the need to cut emissions and work towards greener industries.
Almost 200 countries agreed to keep global warming down to a 1.5c increase, and this will require a dramatic reduction in emissions across the globe.
Buildings and their construction contribute 39% of energy-related global emissions, according to the UN, and they are likely to be the target of intensive eco-friendly measures. The ESG certificate might be changed to meet new emission targets, which would mean upgrades to existing green offices and the building of new ones to replace outdated structures.
Businesses might also be offered subsidies by governments keen to accelerate this process. Already, we have seen nations offer their citizens financial help in buying greener vehicles, and this type of incentive could become more common in the business sector.
The change towards a greener business sector has been talked about for years by governments and companies, but we are now seeing concrete proof of this change. Sustainable workspaces are a key part of environmental initiatives, to the point that they are now overtaking traditional buildings as businesses’ preferred option. If European nations are serious about climate change, then they must build on this momentum over the next decade and beyond.
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