On Wednesday a panel discussion organised by The Association of Real Estate Funds (AREF) considered the impact of the wellness trend on building development and use.
Broadly speaking, this means supporting physical and mental wellbeing through building design. This can range from design which optimises natural light and provides high air and water quality to ensure physical comfort, to provision of areas for a yoga studio, outdoor coffee break or on-site therapist in support of the mental health of those using the building.
What is driving the trend?
As businesses seek to attract and retain the best and brightest staff from diverse backgrounds and multiple generations (with differing demands), there is an increasing need for buildings to be focussed on people, not business.
Lee Elliot of Knight Frank noted that businesses are now looking at real estate as a strategic device to support and facilitate change within the business and to attract and retain staff and that as real estate is usually only around 15% of the cost-base of a company, driving rents down by, for example, reducing space, is a false economy when compared to the costs of staff replacement.
The goal is that in providing buildings which invest in wellbeing, businesses can boost staff morale, reduce absenteeism and increase productivity – and in the age of remote-working, encourage staff to commute into the office more often!
It was also noted that while the trend is particularly prevalent in the corporate office market both in London and the regions, it is moving into other areas such as PRS where attracting tenants is key.
Are the additional costs worth it?
Investors were inevitably keen to know whether the cost of developing buildings to achieve certain wellness criteria or accreditation through WELL building standards is reflected in increased rents.
The view from Michael Brodtman of CBRE is that currently this cannot be measured as a percentage uplift on rents, as wellness cannot easily be separated from other aspects of a building. However, like sustainability over the past 10 years, he sees wellness becoming embedded within the definition of “prime real estate”. As such, the wellness trend cannot be ignored by investors if they want to future-proof their portfolios.
Anecdotally it was noted that lenders are increasingly asking questions about the environment and social aspects of a building but that this is not being reflected in lending criteria yet. However, the view from the panel was that there will be periods in the economic cycle where occupiers have greater choice so that these factors will begin to be more formally taken into account by lenders and reflected in loan margins.
Aside from the productivity benefits, which are not clear at present, I’m sure those of us working in offices will agree that the wellness trend is a welcome one!