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real e stat e ma NagemeNt Corporate Real Estate Goes Green: Generating Shareholder Value, Boosting ROI, and Protecting the Environment By george g. BoUrIs mcr aND peter mIscovIch C ompanies spend a good deal of time struggling to prioritize financial allocations among competing interests, including employee salaries, technology upgrades, and product or service development. The corporate real estate (CRE) Department can ease that financial challenge by spending some money to save a good deal more money. How? Follow three proven moneysaving strategies: Operate the company’s facilities in a more sustainable way. Implement green renovations of existing properties. Specify green construction for any new buildings. European corporations have long been leaders in green design and technology innovations. ABN AMRO’s energy conservation measures at its Amsterdam, Netherlands headquarters, for example, cut the building’s carbon dioxide emissions by 640 tons annually. In the Asia-Pacific region, Japan and Australia have embraced sustainability with a particular emphasis on energy efficiency and a reduction in greenhouse gas emissions. The green nine-story A$112 million (US$85 million) Lend Lease global headquarters, completed in 2004 in downtown Sydney, uses 30 percent to 40 percent less power and emits 30 percent fewer carbon dioxide emissions than a typical Australian office building. Since moving into the new building, Lend Lease has reported an 8 percent gain in worker productivity, a major saving for a company whose greatest expense is salaries. In the last decade, U.S. corporations have generated greater shareholder value and significant ROI by greening their corporate real estate. Citigroup owns and leases 14,500 properties, totaling more than 87 million sq. ft. (8.1 million sq. m.) of space, in over 100 countries. Citigroup has t he le aDer committed $10 billion to reducing greenhouse gas emissions by 10 percent from its buildings globally by 2011. The company has also established a LEEDSilver rating as the target for all of its new office and operation centers worldwide, among many other sustainable measures. greeN cre = NeW soUrce of reveNUes A CRE Department that greens its existing and new properties will generate significant financial returns for its company, improve its branding, and attract skilled young workers. Green buildings also generate valuable good will for companies. In Manhattan, the newly completed Hearst Tower and the under-construction Bank of America Tower have unleashed a torrent of favorable media coverage that no amount of advertising dollars could purchase for these companies. 31 jUly / aUgUs t 2007 c o r p o r a t e r e a l e sta te goes gr eeN : geN er a tI Ng share ho lDe r v alUe , Bo o s tI Ng roI , aND protectI Ng t he e NvIro Nme Nt How can your CRE Department create a comprehensive workplace and real estate sustainability program? Adopt the following strategies. Workplace traNsformatIoN One of the best things a company can do for its bottom line is reducing the number and size of its physical workplaces. How? First, the use of Employee Mobility strategies reduces the required space for corporate real estate, and workers do not have to commute to their jobs to be tethered to their desks, thereby reducing oil consumption and carbon dioxide emissions. Employee Mobility also allows for greater utilization of existing space, permitting greater space allocation for collaboration and socialization, thereby improving performance and productivity. A second Workplace Transformation strategy is a reduction in the amount of work space per person from an average 250 sq. ft. to 150 sq. ft. (23 sq. m. to 14 sq. m.) or less. This decrease in a company’s leased and owned space means that fewer natural resources are consumed to construct, maintain, and operate buildings, and less of the company’s budget goes to pay rent or run those facilities. Deloitte’s Workplace of the Future leads to a 30 percent reduction in square footage per employee and a 30 percent associated savings in energy costs — a savings of over $100 million per year within 2.5 years of implementation at Deloitte. The strategy also offers workers more natural light, better quality, and improved acoustics. 100 perceNt of yoUr Workplaces shoUlD Be greeN Taking one action—installing an energy-efficient ice storage-based air conditioning system at its 11 Madison Avenue offices in New York—now saves Credit Suisse $1 million annually in energy costs. Imagine how much money a CRE Department can save its company by going beyond energy efficiency to green an entire workplace, let alone an entire real estate portfolio. Adobe Systems has carried out green renovations of its three downtown San Jose, Calif., headquarters buildings to LEED-Platinum standards. Although the headquarters’ staff has grown by 35 percent since 2001, Adobe’s electricity consumption dropped by 35 percent following the green renovation, natural gas use by 41 percent, domestic potable water consumption by 22 percent, and landscape irrigation water use by 76 percent, savings which go directly to the company’s bottom line. Even the simplest steps can yield great benefits. Adobe spent $153,095 installing “Watt-Stoppers” — a series of outlets and power strips connected to motion sensors that turn off office equipment like computer monitors in the le aDer 32 jUly / aUg Us t 2007 c o r p o r a t e r e a l e sta te goes gr eeN : geN er a tI Ng share ho lDe r v alUe , Bo o s tI Ng roI , aND protectI Ng t he e NvIro Nme Nt unoccupied rooms — which save energy and generated a 253 percent ROI. The total green renovation cost was $1.4 million. The project boasted a 9.5 month payback, generated a 121 percent ROI, and saves Adobe $1.2 million annually. But the benefits of this green renovation go beyond easily quantifiable ROI. Adobe’s headquarters is well positioned to meet current and upcoming California energy efficiency and greenhouse gas emission regulations. The headquarters has also become a magnet for skilled workers. the rIght locatIoN c r e g r e e N I mp e r a t I v e s A few simple things about the Greening of your portfolio. If sustainability becomes a core management principle, your real estate assets can be a source of significant savings for a company, such as lowering operations costs and enabling greater workforce productivity. Any corporate owned or leased building can provide green benefits — not only the white-collar workplaces which get most of the media attention, but also factories, call centers, warehouses, distribution centers, and retail outlets. Greening your corporate real estate means more than reducing your energy bills, although that item has gotten the most attention, because its savings are immediate and easy to measure. A sustainable real estate portfolio also means lower water use, a healthier work environment including improved air quality, greater workforce attraction and retention, the use of energy-efficient equipment within your facilities, reduced greenhouse gas emissions, and location choices that minimize automobile commuting. All these result in higher recruitment and retention ratios, while improving knowledge workers’ productivity, ultimately creating a sustainable advantage over your competitors. Don’t “fall for” the latest technology innovation and overlook the simplest sustainable solutions. Some of the newest energy-saving measures, for example, are expensive, require constant maintenance, and yield only marginal benefits. Taking a simple common sense step like planting a row of trees to shade the west-facing front of a low-rise office park building will shade the building from summer sun and yield real savings in air conditioning costs. Above all, don’t delay in greening your real estate portfolio. Your competitors are recognizing the advantages of sustainable corporate real estate, and increasingly stringent regulations will force your company to have green workplaces and reduce greenhouse gas emissions anyway. Selecting a sustainable location goes far beyond not constructing a new facility on prime farmland, parkland, or the habitat of an endangered species. For both new construction and the leasing of existing facilities, the CRE Department must select a site or a building to reduce worker commutes, such as a location within easy walking distance of public transit to encourage workers to leave their cars at home. Where public transit is not readily available, the company should encourage ride sharing or hybrid automobile purchases. Companies should also consider staggered work times, car-pooling, and four-day workweeks. At Boeing, 25 percent of its U.S. workers participate in one of the company’s commuting alternatives, such as telecommuting, financial incentives for public transportation use, and a car and vanpool program, among other features. At PepsiCo, all 3,300 company cars are now hybrids. Companies should plan future workplaces to be located near where the majority of the company’s workers actually live, or could live affordably. Finally, companies with multiple workplaces like bank branches or retail outlets in one region might assign employees to the facility nearest their home. greeNhoUse gas emIssIoN polIcIes When most people—including the U.S. Congress—think about greenhouse gas emissions, they focus on carbon dioxidegenerating vehicles, factories, and utility companies. They don’t realize that commercial and residential buildings t he le aDer generate 39 percent of U.S. greenhouse gas emissions, including 48 percent of the country’s carbon dioxide emissions. Thus, a company’s greenhouse gas emissions are the direct responsibility of the CRE Department. Although reducing greenhouse gas emissions is an environmental imperative, it will also save companies a significant amount of money. When one global financial services company assessed its real estate portfolio of more than 50 leased and owned buildings which comprise more than $50 million of its annual expenses, it 33 jUly / aUgUs t 2007 c o r p o r a t e r e a l esta te goes gr eeN : geN er a tI Ng share ho lDe r v alUe, Bo o s tI Ng ro I , aND p rotectI Ng t he e NvIro Nme Nt learned that it could save $5 million to $10 million annually by cutting its building-generated greenhouse gas emissions by 25 percent. sUstaINaBle Day-to-Day operatIoNs toner, batteries, fluorescent lamps and ballasts. Kitchen grease and cafeteria waste are composted. All in all, Adobe diverts 90 percent of its headquarters’ solid waste from landfills annually. greeN cre = ImprovINg shareholDer valUe The CRE Department will directly impact the company’s operations in several areas, starting with the products, furnishings, and technologies selected for the company’s workplaces. The CRE Department should specify furniture, flooring, and window curtains and blinds made from natural, recycled, and easily recyclable materials to reduce toxic off-gassing (which creates Sick Building Syndrome and lower employee productivity) and to lessen the company’s negative impact on the environment. Most technologies — particularly computer equipment — consume vast amounts of energy that drive up a company’s energy costs and generate greenhouse gas emissions. Fortunately, the major computer manufacturers have finally recognized their responsibility — and potential loss of revenues from corporate customers — and they’ve taken action. A new green computing standard — EPEAT — was introduced in mid2006. EPEAT evaluates both computer energy and waste issues. Already, more than 300 computer models have met that standard. Energy Star ratings can now be found on most kinds of equipment found in workplaces, and they should guide CRE Department purchasing policies. A CRE Department can have a significant impact on waste management, particularly through in-house recycling programs. Adobe Systems’ LEEDPlatinum headquarters recycles paper, cardboard, plastic, glass, cans, printer Peter Miscovich is Principal, Deloitte Consulting, LLP. Embracing green principles is not only an environmental, social, and increasingly regulatory responsibility, it simply makes solid financial good sense. Consider these compelling numbers. Between 1995 and 2005, DuPont cut its energy use by 7 percent below its 1990 levels, reduced its greenhouse gas emissions by 72 percent (11 million metric tons), and saved more than $2 billion. PNC Financial Services’ new LEEDrated bank branches cost $100,000 less than standard bank branches, use 40 percent to 50 percent less energy than standard facilities, and are constructed 45 days faster than standard branches. The companies that appear on Innovest’s annual Global 100 Most Sustainable Corporations list outperform their peers over the long-term by as much as 55 percent. If Wall Street values green, you should, too, and for all the right reasons. aBoUt the aUthors For more information on this topic, go to CoreNet Global’s Knowledge Center Online. New Strategies for Building a Sustainable Workplace http://www2.corenetglobal.org/ dotCMS/kcoAsset?assetInode=1306833 George G. Bouris MCR is Principal, Deloitte Consulting LLP. the le aDer 34 jUly / aUg Us t 2007