Healthy buildings: an extension of good management

Healthy buildings are the new operating protocol

As tenants prepare to return to the office, it’s evident that the COVID-19 pandemic has elevated expectations for healthy indoor environments. Seemingly overnight, having a healthy building is no longer optional, it has become expected—and for good reason. When buildings are operated correctly, they can positively influence our well-being, increase cognitive function scores,¹ and help achieve global sustainability goals. For the real estate industry, centering decision-making on buildings that prioritize people may create significant value for landlords, tenants, developers, and investors alike. 

More fresh air in workspaces may lead to better cognitive function scores 

Take a moment to remember the hours-long meetings that were typical before the pandemic. Did they make you feel sleepy? What about the brain fog you likely experienced from sitting in an office all day? Studies suggest this may be the result of the actual office environment itself. Why?

Dr. Joseph G. Allen, an associate professor at the Harvard T.H. Chan School of Public Health, has been studying how indoor environments affect our health, well-being, and productivity. The result of one of his studies suggests that stale, recirculated office air may be affecting our cognitive functions. The reason behind this is that high occupancy areas such as meeting rooms often have poorer ventilation systems that may lead to the buildup of air pollutants.²

But, just as standards have been developed to protect the environment, buildings can be improved for the increased well-being of their occupants. Take stale office air, for example. Dr. Allen’s study suggests that building enhancements that lead to better ventilation and allow for greater fresh air intake lead to higher cognitive function scores.¹

Healthy buildings address the role of indoor environments on personal health and well-being

The World Health Organization defines healthy buildings as “spaces that support the physical, psychological, and social health and well-being of people.” ³ With a recent survey showing that the majority of employees (66%) are concerned about their health and safety when they return to the office,⁴ healthy buildings present a holistic solution that takes into account how our indoor environments affect us.

Fortunately, the real estate sector is well positioned to respond to the rising demand for healthy buildings. In fact, the uptake of healthy buildings certifications programs is gaining momentum as more look for guidance on advancing health and well-being in new construction and fit-outs of existing spaces. For example, the WELL Building Standard is currently in use by over 4,000 projects in more than 60 countries.⁵ Fitwel, another strongly recognized certification system, has 2,300+ registered projects across 40+ countries.⁶

Healthy buildings have the potential to create value for tenants, landlords, developers, and investors 

The current challenge in achieving widespread adoption of healthy buildings lies in understanding how they create value for stakeholders. We offer our thoughts.

For landlords and tenants

For employers and tenants, the benefits of having healthy buildings are clear. Studies have shown that healthy buildings can help businesses attract and retain top employees, and lead to employees that stay in their jobs longer, are more engaged, and are absent less.⁷ In another study, the “installation of a lighting system with a timer that adjusted the brightness and color of lighting throughout the day led employees to say their performance was 18% better, 71% felt more energized, 76% felt happier, and 50% felt healthier.”⁸

A pre-COVID-19 study by the Massachusetts Institute of Technology found that health-certified buildings generate a rent premium of 4.4% to 7.7% per square foot.⁹

For landlords, the qualitative benefits of having a healthy building include being a market differentiator of a growing trend and avoiding future obsolescence of indoor spaces as the demand for healthy buildings grows. Furthermore, a pre-COVID-19 study by the Massachusetts Institute of Technology found that health-certified buildings generate a rent premium of 4.4% to 7.7% per square foot relative to noncertified peers.⁹

For developers

A recent survey of global real estate managers and stakeholders showed that 87% of respondents experienced an increase in demand for healthy buildings over the past 12 to 24 months, and 92% expect demand to grow over the next three years.¹⁰ With the strongest demand coming from the residential and office real estate sectors, it’s clear that healthy buildings are a top priority for those who will occupy them. For developers, constructing a healthy building offers an opportunity to capitalize early on rising demand as the focus on the quality of the indoor environment grows. In fact, we believe, incorporating health and well-being into a building’s design will likely become a necessity in the near future.

For investors 

Healthy buildings go beyond just creating higher-quality indoor environments. Healthy buildings are, in fact, an extension of green buildings. Investing in them may not only reduce the negative impact on the environment through the consumption of less energy, water, and natural resources, it may also create positive impacts such as increased biodiversity and increased air quality.¹¹

Green buildings, and by extension healthy buildings, are a proxy for good management practices.

With buildings accounting for almost 40% of global carbon emissions,¹² the real estate industry and its investors have an important role to play in helping combat climate change. Green buildings, and by extension healthy buildings, are a proxy for good management practices and can play a crucial role in helping to create a sustainable future. 

Healthy buildings aren’t a fad

While the healthy building movement is in the early stages, we believe that as our understanding of them grows and their benefits become increasingly quantifiable, the movement will likely grow.

Perhaps we can look at the rise of sustainable investing as a possible trajectory for the healthy building movement. While the practice of environmental, social, and governance investing began in the 1960s, it wasn’t until recent years that corporations, stakeholders, and investors began to care so strongly about these issues. In fact, 2020 saw the largest inflows of funds into U.S. sustainable fund strategies.¹³

U.S. sustainable funds net flows

Source: Morningstar using the Mstar Socially Responsible flag, for data between January 1, 2010, to December 31, 2020. For sustainable funds annual flow details, see the footnote below. ¹⁴

The evolution of sustainable investing in public markets serves as a reminder that change takes time. COVID-19 has likely served as a catalyst to fundamentally change how we view indoor spaces. While it won’t necessarily take 60 years in the making, we’re likely in the early stages of a movement the real estate sector simply can’t ignore. 

Healthy buildings are good practice management 

The places where we work and live can be optimized to create a greater positive impact on our health, productivity, and the environment. Having a healthy building not only demonstrates that developers, landlords, owners, and asset managers are following best practices, but that they’re also prioritizing good practices for building management while fulfilling their responsibility in promoting positive social impacts. Healthy buildings are an investment vehicle that, if managed correctly, can potentially create value for all stakeholders while helping ensure the sustainability of our planet. 

1,2 “Research: Stale Office Air Is Making You Less Productive,” Harvard Business Review, March 21, 2017.  3 “Buildings and Health,” GSA Sustainable Facilities Tool, 2021. 4 “Envoy survey finds employees want companies to embrace hybrid work and mandate COVID vaccines,” Envoy, March 16, 2021. 5 WELL v2, International WELL Building Institute, 2021. 6 Fitwel, 2021. 7,8 “Business case for healthy buildings,” Global Wellness Institute, December 2018.  9 “The Financial Impact of Healthy Buildings,” MIT Real Estate Innovation Lab, December 1, 2020. 10 “A New Investor Consensus: The Rising Demand for Healthy Buildings,” BentallGreenOak, the Center for Active Design, and United Nations Environment Programme Finance Initiative, March 31, 2021. 11 “About Green Buildings,” World Green Building Council, 2021. 12 "Why the Building Sector?” Architecture 2030, 2021. 13 “A Broken Record: Flows for U.S. Sustainable Funds Again Reach New Heights,” Morningstar, January 28, 2021. 14 Morningstar defines the sustainable fund universe as encompassing open-end funds and exchange-traded funds globally that, by prospectus, fact sheet, or other available resources, claim to have a sustainability objective and/or use binding environmental, social, and governance criteria for their investment selection. The sustainable funds group does not contain funds that employ only limited exclusionary screens such as controversial weapons, tobacco, and thermal coal, nor does it contain the growing number of funds that now formally integrate ESG considerations in a nondeterminative way for their investment selection. Money market funds, feeder funds, and funds of funds are excluded.