London’s “green” offices are expensive. But they can help retain employees

Employee satisfaction is a big motivation for companies to go green, especially as the UK faces its tightest labor market in decades.

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LONDON – A fifth of the world’s largest companies have committed to achieving net zero carbon emissions, and a large proportion of those emissions come from the workplace, according to an analysis by the Energy and Climate Intelligence Unit.

Demand for sustainable offices is high, which means prices are high too. There is currently a 26% difference in sales prices between London buildings with sustainability ratings from organizations such as BREEAM and LEED and those without, according to data from analytics firm MSCI.

This is known as the “green premium”. On the other hand, less environmentally friendly, usually older buildings come with a “brown discount”.

This appears to leave company executives and investors with a simple choice between lower overheads and lower emissions – but there’s more to the story.

Joy Nazzari is a founding director based in London. He wants to grow his business, but his former warehouse office building is too small and handicapped accessible, so relocating the team is “mission critical.”

“Cost is an incredible barrier,” Nazzari told CNBC, adding that increased office size and better green credentials will drive rents up “at least 50%” from what the market has seen so far.

“When you’re looking at these brown discount buildings, it’s hard not to go to a lovely old warehouse building like ours,” he said.

Even sustainable venues can be difficult to find.

“It’s not like you stumble across these green buildings everywhere. They’re rare,” he said, estimating that less than a third of the buildings he’s seen would fit the bill.

This scarcity drives prices higher. In addition, there is the company brand to think about.

“It may not seem so relevant against the background of the burning of the planet [but] Your office building is a huge reflection of your business brand. “A lot of new buildings are very office and corporate and maybe not a place we would traditionally choose,” he said.

But Nazzari is facing a lot of pressure to move, especially from his own staff.

“Our team is really young and very much alive to the land they’ve inherited… They’re extremely aware of the green agenda and bring it up all the time. That’s the pressure we feel coming from our team,” he said.

According to the global JLL Future of Work Survey 2022, despite rising costs, most companies are ready to invest in a green workplace. The study found that 74% of the companies surveyed were represented by 1,095 senior corporate real estate decisions. Manufacturers in 13 countries will “pay a premium for green credentials” and 56% plan to do so by 2025.

Great motivator

Employee satisfaction is a big motivation for companies to go green, especially as the UK faces its tightest labor market in decades.

According to the National Statistics Office, the unemployment rate in October was 3.5%, the lowest since 1974. This rose to 3.7% in December.

“We have critical skills and labor shortages that are hurting firms and holding back growth,” Jane Gratton, head of people policy at the British Chambers of Commerce, said in a statement in November.

It is clear that businesses are keen to retain the staff they have.

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“We all know that we are in an environment of almost full employment and there is a real need to create an environment where their employees are attractive,” Peter Crowther, the British Council’s junior vice-president for offices, told CNBC.

“New employees are more interested in the environmental performance of their employer’s building,” he said.

In a JLL report, almost 80% of organizations surveyed said their employees “increasingly expect the workplace to have a positive impact on the environment”, and 75% agreed on a positive impact on society.

And the shift to hybrid work means workers are wondering whether it’s worth going to the office every day, according to the CEO of sustainable real estate developer Edge.

“We’ve seen examples of such low-quality offices that people don’t want to come into the office anymore,” said Coen van Oostrom, adding that the lack of contact can lead to a deterioration in company culture.

“What’s really expensive is if you have a large office building that’s used one or two days a week. That’s a lot of rent you’re paying for limited face-to-face time,” van Oostrom said.

Tighter financial conditions

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According to BCO’s Crowther, sustainability can be put on the back burner as finances become tighter, but as climate becomes more urgent, it becomes more of a priority.

“There’s very little preparedness to see sustainability fall off the list of needs because I think people are becoming more aware of climate that it’s not something that’s going to go away. It’s not something that we can pick up or put down depending on what happens in the economy.” said Crowther.

Business owner Nazzari agrees, even as he points out that he may face a huge increase in costs.

“Do we all just batten down the hatches and focus on the basics? That’s a real risk to the green agenda. We all have a responsibility to make sure we maintain and improve our carbon efficiency through all of this,” Nazzari said.

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