The Second Wave of Sustainability is Health and Wellbeing

Kilroy Realty’s Columbia Square Residence Tower: First apartment rental project to achieve WELL Multifamily Residential Certification

For health and wellbeing in buildings, a wellness certification for a building was a luxury a year ago. Now some consider it a must have, and a way to encourage workers back to the office.

We humans typically spend 90 percent of our time indoors. Perhaps that’s why many us are somewhat complacent about buildings. We generally assume they are safe places to be. The pandemic changed all that. Suddenly, our attention is on whether our immediate environs can make us sick. We are asking questions about air quality, surface cleanliness, and even elevator capacity.

We have known buildings can make people sick for quite some time. The World Health Organization (WHO) coined the term Sick Building Syndrome or SBS in 1986. SBS occurs when occupants experience headaches, allergy-like symptoms, or feel dizzy after spending time indoors. Poorly maintained office buildings are estimated to impact 20 percent of workers. Improvements to air quality, reductions in air pollutants, and better ventilation can reduce symptoms by 70 percent.

SBS is not just a ventilation issue. A building’s stored supply of fresh water can reach unsafe levels of bacteria if the water system is not well maintained, leading to illness and even Legionnaire’s disease.¹ Professor Joe Allen’s book, Healthy Buildings, identifies the nine foundations of a healthy building — ventilation, air quality, health, moisture, dust and pests, safety and security, water quality, noise, lighting and views. They are derived from 40 years of scientific evidence on the factors that drive better health and performance for a buildings’ occupants.

People, Planet, or Profit?

Buildings consume 40 percent of global energy and create 30 percent of global energy-related greenhouse gas emissions.² Being the energy hogs that they are, it was perhaps logical for the early focus of ESG investors to be on energy use reduction. It was also an easy return on investment. Reduce the energy use, reduce the utility bill. That’s good for the planet, and good for profit too. But what about the people?

A healthy workforce is a more profitable one. Healthier workplaces see less employee absenteeism, less sick days, and less employee turnover. Improving workspaces so people are more productive isn’t as easy as changing an incandescent light bulb to LED. But it’s not as hard as we might imagine.

The 3-30-300 rule

This rule of thumb describes a company’s costs for utilities, rent and payroll — all measured per square foot, per year.

A company renting office space for $30 a square foot can typically expect the utility bill to be a tenth of that, or $3. The payroll for the employees occupying that space is on the order of $300 per square foot.

Where then to focus effort?

• 10% saving on utilities nets 30 cents.
• 10% drop in rent saves 3 dollars.
• 10% boost in worker productivity adds $30 dollars of value.

Companies are now beginning to focus more on the potential gains from investing in worker productivity.

The World Green Building Council published reports in 2014³ and 2016⁴ that summarize the dozens of studies that link sustainable workplace design to employee health, well-being and productivity. Case studies highlight the increases in productivity from various improvements:

• Individual temperature control: +3%
• Improved ventilation: +11%
• Better lighting: +23%
• Access to natural environment: +18%

WELL and Fitwel Building Certifications

Traditional green building certifications like LEED and BREEAM have been around for over 25 years with a primary objective to reduce environmental impacts. WELL and Fitwel are newer certifications—both less than ten years old—that focus on occupant health and well-being. Both certifications complement the requirements in a LEED or BREEAM certification, but include more health-focused requirements such as active workstations, proper lighting, low VOC materials, and layouts that promote worker interaction and even hydration. The Fitwel certification process is less onerous than the WELL version — it is both cheaper and an easier to attain. The WELL certification requires on-site verification and is more globally recognized. Building owners pursue the different certifications for different types of projects.

In June 2020 the International WELL Building Institute (IWBI), administrator of the WELL certification, created the specialized WELL Health-Safety rating in response to the COVID-19 crisis. Just 9 months later, over one billion square feet of space had enrolled to be rated. The rapid adoption of this safety rating illustrates how companies are committing to healthier spaces all around the world.

Investing in Health and Well-Being

Forward-thinking real estate companies are investing in upgrades and certifications to make their buildings more attractive to tenants looking for health and wellness. They are banking on employers choosing healthier spaces for their next office lease, and that residents will be looking for these features in their living spaces. Leaders include:

• Empire State Realty⁵, owner 10 million square feet of rentable space across 14 office properties including the iconic Empire State Building, is the first commercial portfolio in the US to achieve the WELL Health-Safety rating across its entire portfolio. They have also Fitwel certified 6 of their NYC properties to date.
• Kilroy Realty⁶ owns 55 properties up and down the West Coast and have more Fitwel certified projects than any other firm in the world, totaling over 43% of their portfolio. They also achieved the world’s first Well certification of a residential rental project, for Columbia Square in Hollywood, CA.
• Dream Office REIT⁷ in Canada, has earned the WELL Health-Safety rating for 25 of its buildings, representing 87% of their gross leasable space.
• Australia’s Charter Hall Group⁸ was one of the first organizations in the world to achieve a WELL Portfolio Score by certifying properties across their organization.
• “Fitwel Champions” are companies using Fitwel at a portfolio scale. Real Estate Investment Trusts (REITs) making the grade include Alexandria Real Estate Equities⁹, Boston Properties¹⁰, Vornado¹¹, and AvalonBay¹².

The Covid-19 crisis has focused the attention of ESG investors on the S pillar (social) more so than ever before. The green building movement is routinely classified under the environment pillar because of the attention paid to energy efficiency. While green building certifications always required health and safety for occupants, the emergence of these new specialized wellness ratings demonstrate the elevation of S toward equal partner in the E, S, and G triumvirate.

Article by Sam Adams, CEO and co-founder of Vert Asset Management. He also chairs the Investment Research Group. Sam leads the development of new products to help make sustainable investing easier for investors. He has been a featured speaker on sustainable investing at financial advisor conferences in the US, UK, Europe, and Australia. Prior to launching Vert, Sam spent almost 20 years working at Dimensional Fund Advisors. He started Dimensional’s European Financial Advisor Services business and led it for 10 years. Sam was part of the team that created Dimensional’s first ESG strategies, the Sustainability Core funds that are offered in the US. He also led the development and launch of Dimensional’s Global Sustainability Core Fund in Europe.

Sam has a BA in Philosophy from the University of Colorado, Boulder and an MBA in Finance from the University of California, Davis. Sam is an avid mountaineer and cyclist, and is very passionate about the environment. He lives in Mill Valley, CA with his wife and three children.

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