May 29, 2008

Is your building in it for the long run?

  • Tenants and owners can support sustainability and increase employee productivity by adopting a long-term approach to building-cost analysis.
  • By A-P HURD
    Touchstone Corp.


    It’s never a good time to ask the CFO for money, and recent media reports aren’t making it any easier. As the national economic outlook becomes more uncertain, even thriving businesses are finding their costs under scrutiny. Growing firms requiring additional space are now viewing new office expansions as more of an investment than simply another cost of doing business.

    Jane Blair of CB Richard Ellis Seattle puts it this way: “We’re finding that tenants are looking beyond cost per square foot to amenities such as child care that can impact their ability to recruit and retain the best talent, as well as enhance employees’ overall productivity.”

    This new approach among corporate tenants has spurred a trend in building design that focuses on the total life cycle of buildings. Not surprisingly, owner-occupied buildings have been at the forefront of this movement.

    Image courtesy of Touchstone Corp.
    The West 8th office tower, under construction at the apex of Westlake and Eighth avenues, will have child care and workout facilities to help attract and retain employees.

    Beginning in 2004, mechanical contractor and engineer McKinstry Co. found that its clients in industries as diverse as software development, academia and research were requesting better decision models for calculating long-term investments in buildings they planned to occupy.

    To support these requests, McKinstry created a detailed life-cycle cost tool called Total Cost of Occupancy to help quantify complex design decisions. Input was gathered from the design team on first costs, operating costs and capital renewal costs, as well as less traditional areas such as program flexibility and productivity benefits. Treating buildings as long-term investments, and looking at a broad range of costs and benefits, allowed design teams to measure the impacts of several innovative strategies, some of which were ultimately adopted.

    On a 500,000-square-foot project for a local software company, the idea of under-floor ventilation was suggested, but it was outside the norm of how these types of buildings had previously been designed. When the life-cycle analysis was completed, the under-floor ventilation came out with a higher first cost, but was included in the final design when it became apparent that the cost of rewiring the building, as technology changes, would be substantially lower. The productivity enhancements documented in rigorous studies tipped the balance even further in favor of under-floor air, even with very conservative estimates.

    “Looking at decisions with a 20- to 30-year perspective and engaging experts in developing assumptions about system performance was key to adopting new technologies that could significantly enhance productivity,” says Dean Allen, CEO of McKinstry. “Life-cycle cost and productivity analysis was a fantastic tool to get the whole design team on the same page about the overall business impact of innovative strategies.”

    Adopting a life-cycle approach that treats assets as investments is not new in most manufacturing fields. Manufacturing firms look at the balance between up-front costs, operating costs, lifespan and productivity enhancements as the framework for most capital investments.

    In their book “Natural Capitalism: Creating the Next Industrial Revolution,” authors Paul Hawken, L. Hunter Lovins and Amory Lovins describe a mail-sorting facility in Reno, Nev., where mail-sorting speeds went from unimpressive levels to the best performance in the western U.S. after changes led to reduced noise and improved lighting.

    In addition, a superior indoor environment has been proven to improve health and productivity. A 1996 study by Cramer-Kresselt Research found that building-related illnesses in the U.S. accounted for $400 billion in annual lost productivity.

    It shouldn’t be surprising that in a knowledge-based corporate culture like the Northwest, where the engine of productivity is active minds, decision makers have started looking at the productivity gains that can be generated by housing their offices in a great building.

    Developers are responding. West 8th, a Touchstone project at the corner of Westlake and Eighth avenues, is the first pre-certified LEED gold core and shell commercial office building in Seattle and features a combination of sustainability- and productivity-enhancing features.

    “We keep hearing that tenants are looking for sustainability, and then some,” says Douglas Howe of Touchstone. “As competition to attract and retain top talent increases, there’s no question that the place you put those people is a huge part of the equation. Our role is to build great buildings where people can be happy and productive.”

    To accomplish this, the developer has planned amenities for West 8th such as on-site child care, a workout facility, additional fresh-air controls on each floor, and several other measures to enhance thermal comfort for tenants’ employees. These investments may result in higher first costs, but Touchstone believes that tenants will ultimately benefit from energy savings, reduced absenteeism, employee retention and higher productivity.

    “From a corporate operations standpoint, the total productivity generated in a building over 20 years can easily be 100-fold the cost of building or leasing the facility — so even small productivity improvements can quickly pay off,” explains Howe.

    It’s an untraditional yet growing approach to facilities, and it’s the kind of investment that even a CFO can get excited about.

    A-P Hurd is a vice president at Touchstone Corp., a Seattle-based regional commercial real estate development company that specializes in high-density urban infill projects. She works on corporate strategy and has a particular interest in market mechanisms that can support great design and sustainable solutions.

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