The concept of ‘wellness’ and real estate first started gaining momentum after the launch in October 2014 of the WELL Building Standard by the WELL Building Institute (IWBI), a public benefit corporation based in New York.
As outlined previously in the Colliers Workplace Series, the WELL Building Standard is a performance based certification tool that involves a building and / or workplace meeting a set of minimum requirements for air, water and lighting quality, as well as providing the occupiers with access to healthy food, promotion of daily physical activity, and focusses on their comfort and cognitive / emotional health. Across seven core Concept areas, there are 100 features that contribute to the Wellness certification.
According to the IWBI, the seven core Concepts of WELL and its numerous features were developed by integrating scientific and medical research together with leading building design and management processes. With 485 global projects listed on their online database, 35 of which are located in Australia, the concept of integrating wellbeing with the office buildings we spend each day in is widely growing in acceptance.
But – does integrating wellness factors into our buildings affect their value?
As with any sort of investment, any expenditure needs to be justified in terms of the return that it provides.
Earlier initiatives such as NABERS and Green Star ratings have been proven to enhance value. This has been achieved via a focus on efficient design and minimising environmental impacts, resulting in lower ongoing occupational costs for both owners and occupiers, and hence enhancing value. With the majority of tenants now demanding that their premises meet certain NABERS requirements, Lessors have had to react to include these ratings in order to retain / attract tenants. Green Star ratings have added a further level of detail to the design elements, now being incorporated in all new office developments.
Whilst there is definitely a cross over between the three individual concepts and their respective certification features (i.e. in the use of building materials / plant & equipment, and resulting light / air quality), the newer WELL Standard goes that one step further. It requires both parties to work together in a partnership to meet the certification criteria. Whilst the Lessor / Owner of a building is directly responsible for elements such as air, water and light quality, the responsibility really falls on the Lessee / Occupier to focus on elements such as nourishment, comfort and mind. A strong partnership between the two parties during both the building design and fitout stages would ensure that each element could be fully investigated and implemented, for maximum effect on overall wellness.
From a valuation stand point, the Wellness concepts are somewhat less tangible in terms of value when compared to NABERS and Green Star. They appear to focus more on the impact to the occupiers of the building, as opposed to being focused on the physical building elements and their environmental impact. This isn’t to say that they don’t add value, only that the element of value that they add is less quantifiable.
The first building in Sydney to be registered for WELL certification was Macquarie Banks refurbishment of 50 Martin Place, whilst other registered buildings include the likes of new generational developments such as Lendlease’s International Towers Sydney at Barangaroo, Mirvac’s HQ at 200 George Street, Investa’s ‘Barrack Place’ at 151 Clarence Street, and AMP’s ‘Quay Quarter Tower’, the last two of which are currently under construction. In nearly all instances, there has been a direct relationship between the Lessor / Lessee that has enabled the seven wellness concepts to be integrated into the design and fitout of a building.
Given the new nature of these buildings, the impact of wellness on asset value is considered to be relatively untested. All of these buildings have set new benchmarks in terms of design and quality and have achieved rentals that reflect this, but from a valuation perspective it is difficult to isolate the impact that ‘wellness’ has on value, against say locational attributes, view profiles, tenancy sizes, quality of accommodation and overall amenity, etc. This is true both in terms of rental value, and asset value.
Where we as Valuers see ‘value’ in wellness initiatives, can be summarised in several key areas:
- Including wellness concepts in building design can aid in attracting tenants to a building. From an occupier point of view, attracting and retaining staff is a major challenge in today’s market and providing staff with leading edge premises that have a certifiable and tangible focus on the occupants’ wellbeing is a valuable marketing tool.
- In a market with increasing supply coming on line from 2019+, the inclusion of wellness concepts could provide an additional selling point for securing a pre-commitment for new developments. This could be one factor that results in a faster marketing period, enabling development works to commence earlier.
- As the first round of lease expiries fall due for the new generational buildings that have incorporated wellness concepts into their design, value is likely to be captured in higher tenant retention rates if the tenant has experienced a positive occupancy over their lease term. A tenant that renews post their initial lease period will result in no downtime for the Lessor, presenting an immediate benefit to the cash flow of the asset and thereby impacting value.
- Enhanced appeal to tenants is also likely to lead to reduced downtime for existing buildings if a current tenant does choose to vacate. These reduced downtime periods would have a direct impact on the level of below the line adjustments included in a valuation, thereby directly impacting on market value.
- Market rent profiles are a key driver of asset value. With strong tenant demand for a product that positions itself differently to its competitors, an enhanced rental could be achieved. As noted previously however, it becomes difficult to isolate the impact on rental value from these wellness initiatives, against other traditional factors such as location, views, tenancy size, local amenity etc.
From a valuation perspective whilst it is difficult to isolate and quantify the impact of wellness ratings on asset value, the focus on ‘wellness’ as a property concept does appear to be growing in acceptance across the industry. This is evident in the scale of new developments incorporating these measures into their buildings, from smaller boutique buildings and individual workplaces, to large scale landmark towers. The long-term impacts on asset value will be revealed over time, but in the present market, it remains a concept which we are keen to see evolve further.
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For further information please contact Cassandra Mortimer, Director - Valuation & Advisory Services, Colliers International on +61 2 9257 0261 or firstname.lastname@example.org