By Tyler Allen, Research Analyst
Sustainability and LEED certified buildings are becoming more and more common. In the year 2000, there were 12 LEED certified projects throughout the U.S. Today, that number stands at more than 100,000. What is the cause for this boom in LEEDcertified projects? Whereas initial LEED trailblazers were landlords seeking a financial edge, today, tenant demand drives the trend. More specifically, employees want green and dynamic workspaces, and in the race to attract the best talent, tenants are doing all they can to satisfy that requirement.
The U.S. Green Building Council (USGBC) created LEED guidelines to nationally standardize and outline building principles that emphasize the value of people, planet and profit. The decision to go green and seek a LEED certification is historically based in the operations and management (O&M) costs. Building owners and investors primarily focus on profit, as the ultimate success of the investment relies on the ROI of the project. Tenants have a different viewpoint of their spaces and instead focus on the other two “pillars of sustainability”- people and planet. Having a socially responsible company that highly values employees is now seen as a corporate culture prerequisite that most employees seek. In recent years, the building owner’s focus on profit and the tenant’s requirement for people and planet-focused spaces has intersected, leading to LEED becoming the standard for development.
One of the major fears for a project is that the building will become obsolete to future users’ needs and be uncompetitive, endangering the financial stability of the property investment. Demographic changes, public pressure on corporate responsibility and changing workplace dynamics are forcing the hands of owners to embrace LEED and offer its benefits to tenants. This fear of obsolescence is created from tenants’ constant new demands. Like the analogy of traditional consumers, tenants can force change by voting with their dollars. Significant workplace changes happening today and the impending demographic changes on the horizon are making landlords shift strategies at staggering speeds. In fact, most institutional investors now have a baseline required percentage of LEED or sustainable buildings in their portfolio. Insurance companies are a major institutional investor group that have pushed this practice. Sustainable development and mitigating the impact on the planet literally helps all their insurance claims business.
Today’s tenant cares more about employee health and productivity than ever before. The built work environment is integral to the recruitment and retention of employees. This is a trend that will only accelerate, as the post-recession economic resurgence and impending Boomer exodus from the workforce are making firms compete for talent and scramble to assemble the best team for long-term success. Given the choice, these employees will only work for a firm that is socially responsible and invests heavily in its human capital. Firms can’t take a chance and must demand a space that promotes and exceeds those employee demands. This adds to landlords’ fear of obsolescence and is pushing them to aggressively expand their LEED holdings. The model of consumer sovereignty—customer demand from the bottom—is forcing the investor hand at the top.