REJournals.com - Commercial Real Estate Property News for Chicago and the Midwest

Don Schoenheider, vice president, Liberty Property Trust

Fifteen years ago the word “recycling” was something aging hippies did and a “carbon footprint” was what was left if you stepped too close to the fireplace and then walked on a rug. How times change: today both are top of mind for commercial real estate developers, brokers and tenants, and it is crucial to understand the benefits if you want to best serve your company or client.

Whether you call it “sustainable,” “high performance” or “LEED” design, commercial real estate development has been forever changed on four important levels: building occupancy cost, employee productivity, customer relations and commitment to the future of business. Let’s look at each of these areas from today’s real estate decision maker’s perspective.

Occupancy cost.  Sustainable buildings are first and foremost about efficiency – saving energy, saving water and keeping reusable materials out of landfills. Liberty has been developing sustainable office and industrial buildings for a decade; we’ve built more than 35 LEED certified buildings (eight million square feet) since 2002.  In addition, we have completed energy conservation measures, lighting retrofits, green cleaning products, recycling programs and water retention programs in hundreds of our existing buildings.

Those experiences have demonstrated time and again that they can provide tenants with a commitment to a sustainable environment and save them money; at least $.15-$.30 cents – or more – a square foot in occupancy costs. Lower electric bills, lower water bills, lower gas bills … something they can easily (and happily) relate to.

Healthier buildings. Sustainable buildings tend to be healthier, meaning less time is lost to illness which translates into greater productivity and lowered employee turn-over. While real estate costs are significant, they rank third in total costs of running an office or a warehouse operation; it is labor that is the top cost to most companies. Given the statistic that the cost to replace an employee is approximately 6 times their annual salary, lower absenteeism and employee turn-over meaningfully translate directly to the tenant’s bottom line.

Your client’s constituencies are demanding sustainability. Investors see the cost savings, employees see the health benefits, vendors see the opportunity to work with a progressive company and customers are actively looking for a commitment to the environment. Sustainability is a positive message point for nearly every constituency – and the incremental cost to build one, when done correctly, averages just 1-3% more, and often comes in near break even. It’s the goodwill bought by the commitment, from both employees and customers, that cannot be replaced.

But here is what I think maybe the most compelling argument of all: “sustainability” can mean much more than the tenant’s current operation – it can mean their future.

Flash back: remember in the 1980s all the industrial buildings developed with 24’ clear heights? For most companies in need of warehouse and distribution space today, those 24-footers no longer make the short list – today’s companies need 30’ clear heights or greater. Those ‘80s buildings are as obsolete today as disco and eight track tapes.

Now flash forward and ask yourself: Who will be the commercial real estate decision makers in just 10 or 15 years? People who have grown up recycling, tracking that carbon footprint (and I don’t mean across the carpet), installing solar panels in their homes and driving hybrid cars. How will they view non-sustainable buildings? Just like disco (and grunge and ponchos and Ugg boots and …): obsolete.

That is not to say that the definition of “sustainable development” will remain static. We at Liberty remember saying in 2002 that a sustainable building was only expected to cost 10-20% more to develop than a standard building. Today as we approach break-even, the goal is to make them even less expensive to develop than standard buildings.

As more and more buildings come online and we study a larger universe of trend lines, major leaps will be made in efficiencies. And it will be – again – sustainable buildings, developed to be flexible so they can absorb these changes – that will lead the way. Companies that understand and commit to sustainable design today make strong financial, workforce and community relations statements that solidify their position with the next generation of commercial real estate professionals. It’s up to us to make sure that the message of sustainable design reaches them.

Donald Schoenheider is vice president and city manager responsible for Liberty’s Chicago region. Prior to joining Liberty in 2005, he served as the managing principal of Landon Properties LLC; the managing partner of Jones Development Company of Illinois; the managing director of Trammell Crow’s Chicago operation and as vice president of industrial properties at Grubb & Ellis Company. He earned a Bachelor of Arts from Valparaiso University and completed graduate work in Public Administration at the University of Illinois.

Tags | Chicago, industrial, Liberty Property Trust, Sustainable

© 2012 Real Estate Communications Group. Duplication or reproduction of this article not permitted without authorization from the Real Estate Publishing Group. For information on reprint or electronic pdf of this article contact Mark Menzies at 312-644-4610 or menzies@rejournals.com