The decision to occupy
commercial green buildings:
Tenant’s perspectives of the
Auckland office market
Deborah Levy and Gemma Peterson
University of Auckland, New Zealand
Outline
• Background
• Sustainability as perceived by a
tenants
• Importance of sustainability in the
location decision of occupying a
commercial building
Background
• Previous research discussed the impact of
sustainability on commercial property investment
in Australia and New Zealand from the perspective
of the property investor (De Francesco and Levy,
2008)
• This research is a preliminary study designed to
gauge what the key location factors decision
makers consider when selecting a commercial
office building to locate, in Auckland, New Zealand
• Interviews with large and medium sized tenants
located in green/sustainable buildings
Green Building Literature
• Three core areas
– Post-occupancy responses
– Valuation and investment issues
– Demand characteristics
• Traditional Location Decision Literature
– Does it align with green buildings?
Post-Occupancy Response
• Heerwagen (2000) shows benefits of green
buildings and how it is important for the
organisation to be integrated with the system
at the start. Need to be aware on how to
operate buildings (Edwards, 2006).
• User experience in buildings are shaped by
characteristics and quality of space (Brown et
al, 2010)
• Comfort and satisfaction levels of green
buildings (Paul and Taylor, 2008)
Valuation and Investment
• Value of green buildings is higher than nonrated buildings (Eicholtz et al, 2010)
• Sustainability and the role of valuation (Lorenz
and Lutzendorf, 2008)
• Cost consultants overestimate capital costs of
energy efficiency and underestimate cost
savings (Bartlett and Howard, 2000)
• Ellison et al (2007) Sustainability and
investment property worth
• Pivo (2008)
Demand Characteristics
• Little literature available
• Dixon et al (2009) found that occupiers who
moved to a BREEAM rated building were in
business sectors with strong environmental
and corporate policies with sustainable
emphasis
• Location and availability remained paramount
in the location decision
Traditional Location Decision
Literature
• Do the traditional location factors still
apply to green buildings?
– Shift from neo-classical location decision
influence of cost to behavioural influences
(Brouwer et al, 2004)
– Lizieri (2003) and Gibson (2003) highlight
importance of flexibility
– Prestige of location is important (Sing and
Ooi, 2006)
Traditional Location Decision
Literature
– Key individuals exert influence over the
decision making process (Greenhalgh,
2008)
– Decisions are affected by business
objectives and requirements (Nourse and
Roulac, 1993; Lizieri, 2003)
• How are these two literature streams
linked? What is the relative importance
of sustainability to the location
decision?
The Tenant Location Decision
Other global
influences
External
environment
Asset creators
(developers)
Owners of capital
(investors)
Managers of capital
(funds managers)
Investment
environment
SUSTAINABILITY
Built
environment
Asset managers
(agents)
Asset users
(tenants)
Asset owners
(landlords)
Regulatory
environment
Government and
related agencies
Industry groups
(eg. PCA, BCA)
Non-Government
Organisations
(NGO’s)
Example some of the buildings
•
•
•
•
•
5 Green Star Rated
Premium Grade
Very good location
Speculative development
Finished in the recession, now highly vacant
• Commissioned by corporate tenant and fully
preleased
Drivers and Barriers for Sustainable
Offices
• Evident shift of business practice towards a
green sustainable future
• Corporate Social Responsibility (CSR) policies
are important in the real estate decision
(Nourse and Roulac, 1993)
• Post-occupancy response of green star rated
buildings is positive (Edwards, 2006)
• Cost of obtaining the green star rating is high
and therefore means a higher rental for the
tenant
Key Issue
• Is it imperative that a commercial
building has a green star rating from a
tenant’s perspective?
• Level of importance of sustainability
relevant to traditional location decision
factors
Objective
• Market research has indicated occupiers are
demanding ‘green’ space (RICS, 2009)
• Little evidence in the literature of what
constitutes the demand for green buildings
• Need to improve our understanding of the
demand characteristics of the commercial
‘green’ office market
• New Zealand context
Demand in the New Zealand
Context
• Contribution to both green building literature
and location decision literature in the New
Zealand context
• Interviews with various tenants who are
occupying sustainable buildings in Auckland’s
CBD to find the factors behind their location
decision
• “Sustainable” building in the context of this
study, either 4Green Star or substantial
“green features”
Methodology
• Undertook in-depth interviews (approximately 1
hour) with tenants’ key location decision makers
• In establishing who to interview we initially sought
guidance from NZ Green Building Council to
determine who were tenants in green buildings in
Auckland
• Interviewees:
– coverage: 9 Tenants
– interviewees: Industry professional who made
the location decision
• Results were transcribed and key themes identified
Range of Tenants Interviewed
• Financial Institutions
– Retail Banks and Accounting firms
• Corporates
– Telecommunications industry
– Airline
– Multinationals
• Property Companies
• SMEs
– Possibility of different important factors to corporates
Methodology
- topics covered in the interview
• Ascertaining perceptions of respondents in the
following areas:
– Why they decided to occupy that particular commercial
building
– If they would be happy to locate in a non-rated building
– Having made the decision to occupy the building
– What was the response of staff
– Has there been feedback from clients or customers?
– Anything they would change?
– Any other final remarks on their location decision
What are the important themes
arising from the location decision?
• Overall, the tenants rated sustainability as
significant however the physical location of the
building is still the most important factor in the
location decision
• Availability of stock and decision to build is an
important issue
• Currently the majority of recently built stock in
Auckland is Green Star rated
• Marketing issues and corporate policy is a
recurring theme for the larger companies
Important Themes arising from the
location decision?
• Location
– Proximity to transport routes
– Accessible by Staff
• Staff
– New building to increase productivity
– Accessible to ensure best staff stay with their
company
• Building Quality and Design
–
–
–
–
Premium Grade
Green Buildings higher grade
Design features
Building Iconism
The important themes arising from
the location decision?
• Landlord Relationship
– Landlords can influence the decision
• Conglomeration
– Tenants’ leases were expiring, allowed them an
opportunity to move from many premises to one
campus
• Cost
– Sometimes an issue for some organisations
– Cheaper OPEX
• Flexibility
– Space needed to be flexible for requirements
The important themes arising from
the location decision?
• Culture
– Identity of company with the building
– Space reflects company culture
• Specific Requirements
– Some companies have specific requirements that
must be met before occupying a space
• Influence of Management
– Overseas management may have restrictions or
policies that must be followed
• Lease Expiries
– Forced to decide between staying or moving
– As built or commission a building
What are the important themes
arising from the location decision?
• Person making location decision
– They personally have a great impact on where they
move, depends if they are a sustainability advocate
• Sustainability
–
–
–
–
–
Corporate Policy
Marketing
Genuine affiliation with ‘being green’
Is a green star rating necessary?
Would they locate in a non-rated building in the
same location?
– Do staff prefer sustainable features?
Key Ideas/quotes reflecting
themes
• Retaining or obtaining good staff is important,
space must accommodate the needs of staff
– ‘Location was all the reasons about your brand,
about your profile, accessibility for clients and
accessibility for staff – the move here would be the
least disruptive for staff’
– ‘One of the considerations is not moving staff around
a great deal’
• Where the building is located is of major
importance in the decision
– ‘We were looking to occupy space in a premium
building in Auckland’
– ‘We still would have moved in because it’s the right
location’
Key Ideas/quotes reflecting
themes
• The building’s design and profile is important
for marketing reasons and reflecting corporate
culture
– ‘Where we are positioned in this property sector
reflects where we are positioned in the market’
– ‘[The building] is a marketing tool itself’
• Key location decision maker has a great
influence on the decision
– ‘We love the industrial look of it, just on a personal
level, I love it’
– ‘There was a conscious decision of the staff to go
into a 5 green star’
Key Ideas/quotes reflecting
themes
• Sustainability or Green Star rating
– ‘Corporate responsibility is the principal
consideration’
– ‘We wanted to make a very conscious step forward in
our carbon footprint reduction and our green
commitment to NZ’
– ‘We were looking for a green star rated building if it
were feasible’
– ‘The ecos of the building suits what our company is
about’
Links Between Themes
•
•
•
•
•
•
•
•
Staff and Location
Sustainability and Marketing
Marketing and Building Design/Quality
Decision to Build or select As Built
Consolidation and Staff
Availability and Lease Expiry
Cost and Sustainability
Building Quality and Staff
Key Drivers in the Decision
• Availability of Stock
– Majority of new buildings in Auckland have a green
star rating
– Either had to choose as built or commission own
building
– Decision is influenced by what is available
Key Drivers in the Decisions
• Person involved in the location decision
– Influence whether they choose a green star rated
building or not
– Own beliefs come into the decision
– Align to a certain building
– May have to follow certain requirements or answer to
overseas management
Key Drivers in the Decision
• Requirements of Corporates
–
–
–
–
Overseas management conditions
Need certain floor area
Certain location
Branding through the building
• High profile building to match company brand
• Green star rating
– Price range
Key Drivers in the Decision
• Different objectives between smaller and
larger organisations
– Smaller organisations want to align their business
objectives and culture with the space
– Larger organisations need to commit to their
environmental policies for public perception reasons
Economic drivers
– Issue of the Global Economyimpacting on the
study
– Commissioning a building or choosing as built
space
– Premium rentals of green star rated buildings
– Availability of stock
Overall findings
• The factors found in this study are similar to
Dixon et al (2009)
• Auckland CBD is a small market however
evidence shows that factors such as location
and staff are most important in the decision
• Issue of only green star rated new supply is all
that is available currently in Auckland
• Sustainability vs. Green star rating
– What is more important
Discussion
• It is clear that a green star rating is not the
main priority for all companies when choosing
an office building in the Auckland CBD
• This may be for a number of reasons:
– Traditional location factors are more important
– Green star rating is just to comply with corporate
policy
– Sustainability is perhaps more important than the
rating
• Implications?
Further study
• Quantitative study in accordance with a
property company in Auckland
• Survey to all occupants in Auckland CBD
• Extend our understanding of occupier
requirements and sustainability in the context
of commercial buildings