A WeWork office space

Coworking continues to take the corporate world by storm, as it evolves from the workplace solution for sexy start-ups and footloose freelancers to an innovation strategy in the corporate world.

The number of coworking enterprises continues to accelerate rapidly as large telcos and tech giants – Verizon, IBM, Microsoft and Google among them – move employees to incubator spaces to head off industry disruptors.

What better way to keep an eye on potential market agitators, poach top talent and monitor potential acquisition targets, all the while reducing your real estate costs?

Meanwhile, WeWork – which boasts a 90 per cent growth rate in the number of enterprise clients in the last year alone – now manages buildings for IBM in New York, Airbnb in Berlin and Amazon in Boston.

Premium building owners are scrutinising the WeWork model, and asking: how can we bring these principles into our offering? And so they reach for ever-escalating levels of “value add” – marble-clad dressing rooms, souped-up cycling facilities and deluxe wellness centres among them.

That’s great for top-tier tenants. But the mass middle – the companies with 20 to 100 employees who are too busy struggling with their clunky IT systems to be worried about yoga rooms and healthy eating policies – just want to get the work done and the bills paid.

And those bills are getting bigger. The financial controllers and accounts payable clerks in these companies can expect another series of nasty shocks this year as energy prices rise rapidly in the first half of this year.

So forget super-fast internet and slick concierge services. The real opportunity to value add is found in energy efficiency.

Fourteen per cent of all Australian office space is now signed up to the national CitySwitch program, which is designed to improve energy efficiency, cut carbon and save money. But let’s call a spade a spade. That leaves 86 per cent of Australia’s office space that isn’t capturing these energy savings.

Many of these mid-size tenants will never make sustainability part of their everyday business strategy, regardless of how many times we steer them towards the Sustainable Development Goals, Paris Agreement or looming Modern Slavery Act.

An inconvenient truth: there’s no relationship between building and tenant performance

Last year, the City of Sydney commissioned Energy Action to analyse the energy split between base building and tenancies in commercial office buildings to gain insights into tenancy energy performance.

We uncovered an inconvenient truth. There is no statistical relationship between the energy intensity of a base building and the energy efficiency of its tenancies. In other words, an efficient base building has no influence on tenant behaviour. Tenants might say they are attracted to a shiny NABERS or Green Star rating, but it doesn’t mean the people using the building are more likely to switch off a light or turn down the airconditioning. This tells us we have a lot of work to do to bring tenants into the sustainability tent.

This shouldn’t come as a surprise. Australia’s property industry leaders smashed the Global Real Estate Sustainability Benchmark (GRESB) scores last year, but one of our few weak spots was tenant engagement. With a seven-year leadership streak behind us, maintaining this leadership will require closer engagements with our tenants.

And so back to coworking. Sustainability can be a service offering, in much the same way WeWork stocks the staff fridge with craft beers and handles your daily mail.

Lendlease’s eco-concierge at Barangaroo South points to the potential of this value-add service in middle markets. The eco-concierge works with every commercial and retail tenant – all 80 of them – throughout the precinct to realise Lendlease’s carbon neutral ambitions. Lendlease understands that ultimately it is the people who use the place who determine whether it is sustainable.

Building owners are ready to provide a suite of services to tenants. This can be guiding the NABERS rating process and capitalising on the opportunities uncovered. Or it can be helping tenants to choose the right contractors so that fitouts deliver strong productivity outcomes and feature materials that can be returned to manufacturers at end of life. We’re not there yet, but in the future I predict building owners will have the skills to assist tenants transition to cloud-based computing to free up those clunky over-chilled server rooms taking up valuable real estate.

But one of the property sector’s core and perhaps overlooked strengths is our engagement with the energy market. Large landlords don’t just understand solar panels and battery storage. They also understand how to negotiate energy contracts to extract the best value for tenants.

It’s time to help mid-sized tenants reap the rewards of energy efficiency and aggregated procurement at scale, and for the office sector to use its hard-won expertise to lead the way towards a net zero carbon future. So, forget the free beer and ping pong tables. The real value for tenants will be found in sustainability as a service.

Esther Bailey is sustainability programs leader – buildings at the City of Sydney.

Leave a comment

Your email address will not be published. Required fields are marked *