The Covid pandemic has pushed ESG (Environmental, Social and Governance) initiatives to the forefront for many stakeholders in the commercial real estate community. Historically, as scientists focused on climate change, we saw the development of sustainable frameworks, standards, data aggregators and ratings providers. Then, as studies started to provide strong evidence that the built environment could play a significant role with green initiatives and also make a profit, developers and investors have increasingly jumped on the bandwagon to create energy efficient buildings. In other words, the business case for the green movement was successfully made. Now there is a burgeoning industry devoted to measuring the progress that is being made and documenting that a building, company or portfolio is, or is not, making progress towards their goals related to water consumption, energy and greenhouse gas emissions and making an impact.
“Women and our younger workforce (under-30 somethings) are demanding a better quality of life, both at work and at home”
A much harder initiative to wrap one’s head around is the S in the ESG. We believe that the built environment plays an important role in this area as well. As James Graaskamp said over 30 years ago, “Man is the only animal that builds his terrarium about him as he goes and real estate is the business of building that terrarium. So, we have a tremendous ethical content, tremendous social purpose.” (WREAA 1988). As Covid lockdowns persisted and companies embraced technology that enhanced the ability for remote work without a large loss in productivity, we have learned a lot of important lessons about how the work culture and our planning/development processes may not be the best for creating a healthy and liveable community. The Great Resignation and the current talent wars to attract and retain workers are providing strong evidence that a large part of our workforce does not want to return to the old way of doing things. In short, the genie is out of the bottle and we do not believe it will not be crammed back in. Women and our younger workforce (under-30 somethings) are demanding a better quality of life, both at work and at home.
So, instead of trying to come up with new exotic amenities to lure employees back to our city centres, real estate professionals need to focus their energy on revamping/redesigning/reusing our inner cities to make them more hospitable and more habitable. By live, we mean affordable and reasonably sized homes or flats; a shoe-box sized space does not work for a family of four. This family also requires good quality childcare centres and schools. People want close proximity to grocery stores, medical offices, pharmacies, senior housing/elder-care facilities, and even toy stores and dog-care services. By play, we don’t just mean a gym, bar or a yoga studio. We mean parks and recreation facilities for adults and kids to play and people to connect outdoors. For work, there has to be quality space with access to natural light and areas to work quietly, but also collaboratively. In short, we need to create space that is more flexible and hospitable. No longer will a sea of cubicles attract or retain a talented workforce. Finally, we need to work on our public infrastructure to create welcoming environments. A stand-alone property can have all the modern convenience and amenities, but if the linkages are unsafe the property will have limited demand.
In short, the S in ESG is all about how our real estate investments fit in to the overall fabric of a community. That community includes how the users of the real estate relate to the specific building but also the real estate that is in close proximity. The more positive the experience, the more valuable the real estate. Reductions in what Graaskamp called “the costs of friction” means demand will go up. And the basic laws of economics state the greater the demand, all else being equal, the higher the price. Covid taught us that working from home allowed people (particularly women) to remove many of the hassle factors associated with the “drive until you qualify” mantra which resulted in long commutes to attain affordable housing, good schools and modern conveniences commonly found in the suburbs. If we want to revitalise our inner cities we need to come up with new policies, initiatives and designs that truly embrace the ability for everyone to live, work and play in them. In short, we should strongly consider bringing suburban amenities into our downtowns. To adopt the famous mantra from Field of Dreams: if we include them, they will come.
