The recent global economic downturn did not have the expected negative impact on consumer appetite for green products and services, and this continuing consumer demand is a driving force behind the growing number of CEOs in all sectors who feel that sustainability issues will increasingly become integral to all aspects of their business. This thinking is in turn becoming the market force, driving commercial landlords to increasingly view green features as a necessity when it comes to attracting and retaining these sustainably minded businesses as tenants, although the reality is that many landlords do not yet have much to offer in the way of sustainable product and are only just beginning to take their portfolios in this direction.

1. BUSIN E S S
BRIEF ING
THE GREEN ADvANTAGE
AN ANALYSIS OF NATIONAL LANDLORDS’
COMMITMENT TO SUSTAINABILITY
WINTER ‘11 | A NATIO NAL SUSTAINABIL ITY PRACTICE G ROUP PUBL IC ATIO N
,
CONTENTS Ex EC U TIvE S U mmARY
Executive Summary The recent global economic downturn did not have the
1 Introduction expected negative impact on consumer appetite for green
products and services, and this continuing consumer demand
3 In the Public Eye and in The Bank
is a driving force behind the growing number of CEOs in all
4 Overview of Survey Results
sectors who feel that sustainability issues will increasingly
5 Analysis of Survey Results become integral to all aspects of their business. This thinking
is in turn becoming the market force, driving commercial
landlords to increasingly view green features as a necessity
when it comes to attracting and retaining these sustainably-
minded businesses as tenants, although the reality is that
Cushman & Wakefield, Ltd., Broker age
33 Yonge Street, Suite 1000 many landlords do not yet have much to offer in the way of
Toronto, Ontar io M5E 1S9
Tel (416) 862-0611
sustainable product and are only just beginning to take their
www.cushmanwakefield.com portfolios in this direction.
INTRODUCTION: THE GREEN ADvANTAGE
Consumer demand for green products and services was not set back by the recession, despite
what common wisdom might have predicted. And just as it is becoming virtually impossible to
find a retailer that doesn’t sell its own version of the now ubiquitous re-usable shopping tote,
it would be virtually impossible to find a new construction building that doesn’t list numerous
green features among its selling points.
In fact, green features are becoming table stakes, and landlords are increasingly recognizing their
importance to staying in the game. And, if not a game, commercial real estate is a competition,
and the current perception seems to be that whoever holds the property with the most green
features wins.
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2. T H E G R E E N A D vA N TA G E
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Cushman & That is how commercial real estate landlords across Canada seem to view the situation, at least. In late
Wakefield conducted 2010, Cushman & Wakefield conducted a Canada-wide survey of landlords in all commercial real
a Canada-wide
estate asset classes and the vast majority—71.4%—felt that sustainable green features aided in the
survey of landlords
in all commercial
marketing of their properties, while 85.7% believed that energy efficiency specifically was a driving
real estate asset factor influencing tenancy occupancy decisions in their portfolios. While there will always be a
classes and the vast segment of tenants for whom the lowest cost option is more important than the greenest one, 40% of
majority—71.4%—felt landlords surveyed believed that sustainability issues would be very important to their company’s future
that sustainable green performance—there is clearly sense that the segment of tenants whose stakeholders (whether employees,
features aided in the
clients or shareholders) place value on sustainability issues is growing, and that landlords need to address
marketing of their
properties, while 85.7%
these issues in order to remain competitive.
believed that energy
efficiency specifically Landlords are right to take this view. For “Emerging Trends in Real Estate 2011”, PricewaterhouseCoopers
was a driving factor (PwC) and the Urban Land Institute (ULI) polled more than 600 real estate experts and found
influencing tenancy widespread agreement that green buildings will become increasingly sought after as tenants look to cut
occupancy decisions in operating costs and back up corporate environmental and social responsibility goals. The majority also
their portfolios. described sustainability issues as “unavoidable” for the sector.
This expectation is reinforced by the CEOs who were interviewed as part of the report “A New Era of
Sustainability—UN Global Compact-Accenture CEO Study 2010”. According to this report, 96%
of CEOs across the globe believe that sustainability should be integrated with operations. In fact, the
CEOs in the Accenture report view the coming decade as one which “could usher in a new era where
sustainability issues are fully integrated into all areas of business and market forces are truly aligned with
sustainability outcomes.”
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IN THE PUBLIC EYE AND IN THE BANk
Public perception is more important than ever to businesses finally emerging from a devastating
recession that also saw many major companies suffer public image losses almost as significant as their
financial ones. So it is not surprising that strengthening brand, trust and reputation was cited as the
strongest motivator of their sustainability undertakings by 72 percent of respondents to the Accenture
study. In addition to repairing public image, a company’s approach to issues of climate change and social
responsibility is being recognized as a key driver to attract and retain talented employees; and businesses
that locate in efficient office towers experience reduced absenteeism and turnover. The chart below
highlights some key factors that drive occupancy decisions.
These businesses also, according to the Green Value study developed by Cushman & Wakefield’s
Valuation Group, report significantly lower energy costs, and overall operating cost reductions of
anywhere from 25 to 50 percent compared to conventional buildings.
In another examination two years ago of new downtown Class “A” buildings in Toronto, Cushman
& Wakefield found that new buildings that were being designed to achieve Leadership in Energy and
Environmental Design (LEED) Green Building status were projecting lower operating costs than their
older counterparts. With further in-depth analysis and modelling, it was determined that the lower
operating costs were directly attributable to the LEED components of the buildings.
Cushman & Wakefield determined that these buildings, by aiming for LEED certification, would
provide optimal energy performance through reduced energy consumption including: lower lighting
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levels, sustainable material selection, highly controllable lighting and temperature, state-of-the-art
electrical and mechanical equipment and EnergyStar appliances. Water use reduction would also provide
savings through recapture techniques and low-flow faucets, toilet and urinals.
With the mounting evidence of such results, businesses are increasingly recognizing that the operating and
human capital costs savings generated by locating in “green space” are both real and worth investing in.
OvERvIEW OF SURvEY RESULTS
This is the first year for the Cushman & Wakefield Landlord Sustainability Survey, a non-scientific
survey of significant Canadian landlords to gauge both current practice of and attitudes toward
sustainable practices in commercial real estate. Respondents to this survey came from the executive suites
of Canadian landlords of both small (up to 2 million square feet) and large (2 million square feet or
more) real estate holdings in all asset classes.
Although the sample size was small, Cushman & Wakefield believes the results of the survey accurately
capture the trends and attitudes of the community as a whole, as they confirm our observations based on
our interactions with tenants, landlords, developers and investors over the course of the past several years.
Cushman & Wakefield intends to conduct this survey annually so that we can report on trends and the
evolution of sustainability within the commercial real estate industry.
This inaugural survey revealed interesting results that point to where sustainability issues are headed in
Canadian commercial real estate, what is driving them there, and what may be holding them back.
• 1.7% of respondents said that their firms were pursuing sustainability initiatives addressing
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environmental, social or governance issues. But only 50% ranked themselves as an 8 or 9 on a scale
of 1-10, where 10 indicates a high level of knowledge and expertise concerning the application of
sustainability principles to commercial real estate—no respondents ranked themselves as a 10.
• ffsetting their lack of internal expertise, 60% of respondents had hired engineers to assist with their
O
sustainability related efforts, 60% had hired architects, 46.7% had hired sustainability consultants,
and only 13.3% had not enlisted any external expertise.
• 0% of respondents said that having sustainable or green features had a positive impact on both
5
gross rental rates and vacancy rates, but 21.4% disagreed, saying these things had no impact. The
remainder, 28.6%, were unsure.
• 3.3% of landlords who have holdings across Canada said they experienced different demand levels
3
for sustainable or green features from tenants based on region and 18.2% said demand levels varied
between suburban and urban properties.
• nly 18.8% of landlords said their companies had previously produced a Corporate Social
O
Responsibility (CSR) or sustainability report, although 40% said they plan to publish a CSR or
sustainability report for either the 2010 or 2011 fiscal year.
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5. T H E G R E E N A D vA N TA G E
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• 8.5% of respondents felt that eco-labelling certifications such as LEED and BOMA BESt
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would be more or much more important to their company’s success over the next 5 years. No
respondents felt it would become less important.
• 7.1% of respondents believed that LEED would become the leading standard against which
5
commercial properties will be measured in the future.
• 8.6% of respondents currently measure their carbon emissions, but only 14.3% have set carbon
2
emissions reductions targets and only 7.1% make those targets and/or results publicly available.
• 8.6% of respondents had used REALpac’s Green Lease guide or something similar to structure
2
leases; 80% said they would consider using green leases in the future.
• 1.4% of respondents estimated their sustainability related capital expenditures over the next
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five years would represent 1-25% of their total portfolio capital expenditures.
Interestingly, over 40% of landlords surveyed believe that they will receive a greater than 10%
internal rate of return on sustainability related investments.
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6. T H E G R E E N A D vA N TA G E
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ANALYSIS OF SURvEY RESULTS
It seems clear that landlords are anticipating changes in the industry with respect to sustainability
over the next few years—based on their self-reported current practices and attitudes, it is also
clear that these changes will need to be significant if they wish to meet the growing sustainability
demands of the marketplace.
Most landlords currently report that they lack the C-suite or on-staff knowledge required to pursue
sustainability initiatives. With 46.7% of respondents saying that they had engaged sustainability
consultants in the past year, while 60% had retained architects and engineers for assistance with
sustainability-related efforts, as a group, landlords seem to be just beginning to recognize and make
use of the external expertise that is available to them. Still, these responses can be construed as an
indication that those who recognize the limits of their own expertise are taking steps to close the
knowledge gap within their businesses.
Meanwhile, despite recognizing the changes ahead—from the increasing use of green leases and
eco-labelling to legislated public reporting—and starting to take steps in the right direction, most
remain unconvinced that sustainability issues are really that important to their business.
According to the survey results, there are more landlords engaging in some form of sustainable
undertaking and using these initiatives to market their properties than actually believe these
initiatives are having a positive impact on vacancy or rental rates. This suggests that many of those
who are “going green” are doing it because they know that to do so is becoming table stakes, but
they still aren’t entirely convinced of the benefits to their bottom line, beyond putting them on a
level playing field with everyone else who is doing the same thing.
This is likely to change. Although just 40% of landlords surveyed believed that sustainability
issues within their portfolios will be important to the future performance of their companies, 93%
of CEOs in the Accenture report stated that they believed sustainability issues would be critical
to the future success of their business—based on this, it would seem that approximately 50%
of companies in the future are going to be challenged to find spaces that meet their corporate
sustainability standards. There is clearly a disconnect between CEOs looking to rent space and
the landlords with the space to rent to them, and those landlords willing to make the knowledge
and capital investments necessary to close that gap will find they have an advantage over their
competitors—an advantage that will have a positive impact on their bottom line and finally
convince them of the importance of sustainability to their business.
Those landlords who choose not to engage in sustainable initiatives may find it difficult to secure
quality tenants for their properties—marquee tenants are looking for marquee-worthy buildings,
as evidenced by Fortune 500 multinational PepsiCo’s decision in 2010 to sign on as the lead
tenant at AeroCentre V in Mississauga, Ontario. Owned by the Healthcare of Ontario Pension
Plan, AeroCentre V features advanced building technologies such as under-floor air distribution to
improve air quality and full height floor-to-ceiling vision glass to allow for natural light, features
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7. T H E G R E E N A D vA N TA G E
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which improve occupant comfort, health and productivity. AeroCentre V also requires less than
half of the energy consumed by traditional office buildings in North America, something that was
critical to PepsiCo, whose environmental commitment features prominently on its public website
and in its investor relations materials.
57% of landlords surveyed said that they believe government legislation to mandate standardized
public disclosure of commercial building energy efficiency is less than four years away, with 35.7%
expecting to see it in the next 2-3 years. Whether a company’s sustainability practices are self-
reported or transparency is mandated by legislation—or enforced by a global network of Internet-
enabled, self-appointed public watchdogs—they will be subjected to scrutiny, and real estate
practices that don’t align with stated sustainability objectives will undermine both credibility and
brand.
Inevitably, as a combination of market forces and legislation continue to push in this direction,
landlords will be left with no choice but to make sustainability a part of what they offer—
eventually everyone will “go green”, even if they are doing the right thing for the wrong reasons.
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8. T H E G R E E N A D vA N TA G E
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ABOUT CUSHMAN & WAKEFIELD’S SUSTAINABILITY PRACTICE GROUP
Cushman & Wakefield’s National Sustainability Practice For more information, please contact:
Group is comprised of industry thought-leaders in
commercial real estate sustainability initiatives, whose Pierre Bergevin
objectives are to develop and lead the implementation President & CEO
of programs, tools and best practices that promote 33 Yonge Street, Suite 1000
Toronto, ON, m5E 1S9 Canada
improved environmental performance. We aim to enhance
(416) 359-2372
environmental efficiencies in building planning, developing,
pierre.bergevin@ca.cushwake.com
operating and maintaining, to help our clients’ bottom line
and increase property value and tenant satisfaction.
As the world leader in real estate services, C&W provides
clients with the highest-quality services. Adding our
sustainability expertise to our service platform we are able
to support our clients’ social responsibility goals while helping
to minimize impact of business practices and operations on
the environment.
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