Design for human health provides financial returns

Cumulative studies of key design elements affecting occupants, linking human productivity, satisfaction and health to high-performance buildings.

Jeremy Attema
Project manager, stok

Until recently, many companies viewed their workplaces as independent of their core corporate responsibilities and sources of profit. Even when they did see the draw of investing in high-performance offices, companies couldn’t quantify the financial value. But now there are clear metrics that show the correlation between high-performance workplaces and enhanced productivity, increased retention and reduced absenteeism for employees, which in turn produces significant positive impacts on an organization’s bottom line.

A report we recently released provides commercial real estate owner-occupants and tenants with a methodology and dollar value to evaluate the financial impact of high-performance buildings due to occupant benefits.

The analysis of a hypothetical company finds that by designing for the occupant, owner-occupants and tenants can gain an estimated $3,395 per employee in annual profit, or $18.56 per square foot. This means a net present value of $21,172 per employee, or $115 per sf, over 10 years, assuming a conservative $20 per sf cost premium.

Net present value per employee and per square foot over 10 years, assuming a $20 per square foot cost premium.

This total only includes productivity, retention and wellness findings. Include utility and maintenance savings, and the total NPV of high-performance buildings results in $23,584 per employee, or $129 per sf, over 10 years.

The shift toward human-centric design. This shift toward deriving greater value from human capital is over 40 years in the making. In the 1970s, the U.S. was driven by capital investment and manufacturing. Today, the foundation of the U.S. economy is services, which are driven by intellectual capital rather than tangible assets. A report by Ocean Tomo demonstrates that in 2015, 84 percent of the S&P 500 was derived from intellectual capital as opposed to tangible assets. If more than 80 percent of a company’s value is based on its people, shouldn’t buildings be designed to optimize their performance and wellness?

The impact of indoor environmental quality on productivity

In alignment with this increasing emphasis on valuing human capital in business, a growing body of research contributed to by the Harvard School of Public Health, Dodge Data & Analytics, and the Center for Disease Control, among many others, has emerged demonstrating the increasing importance of human-centric high-performance building design strategies. Some of these essential design strategies include indoor air quality and ventilation, thermal comfort, natural and artificial lighting attuned to circadian rhythms, noise and acoustics, active design, views and biophilia.

Human-centric design is a growing trend in Denver, where developers are aiming to attract tech tenants and talent by finding new ways to add value through their real estate, matched with a higher quality of life and lower cost of living compared to primary markets. Leading organizations are redesigning their workplaces to actively promote the health and well-being of their employees in the office. This championing of health and wellness in the office aligns remarkably well with Colorado companies, given that Colorado and Denver have consistently ranked in the top 10 healthiest places in the U.S.

Our report dives into three key areas impacted by human-centric design: productivity, retention and wellness. Using a hypothetical building and organization example based on averages for human-capital-intensive industries, we applied financial impact calculations to findings from over 60 robust peer-reviewed research studies on the effects of high-performance buildings in the three key occupant impact areas. The numbers may not transfer to every company, but the report provides a baseline methodology that is easy to apply to any real company.

Cumulative financial benefit of high-performance buildings due to enhanced productivity, increased retention and reduced absenteeism (assuming a 150,000-square-foot space housing 820 employees).

Productivity. More productive employees translate into more revenue. Accordingly, high-performance buildings provide occupants with an indoor environment that best suits their needs at work. Some examples of these strategies include incorporating enjoyable views of nature, immersing workspaces in natural elements through biophilic design, maintaining thermal comfort and air quality, maximizing natural light while reducing glare, and eliminating common office distractions through smart design to provide both quiet and collaborative spaces for employees.

By implementing the strategies above, our research found that owner-occupiers and tenants in an optimized indoor environment could experience as much as a 9 percent gain in occupant productivity. However, due to the varying methodologies behind the reviewed research findings, our research assumes a conservative 3 percent occupant productivity enhancement due to high-performance buildings in its calculations.

Retention. Talent is paramount. But while it is increasingly challenging to attract skilled workers, it is nearly as difficult to retain them. In fact, a recent study of owner-occupiers found that 57 percent of corporate real estate executives identify talent attraction and retention as a key business driver. This is unsurprising, given that employee separation costs can range from 90 to 200 percent of their annual salary. At the average fully burdened salary cost for management, professional and related occupations of $100,000, this means employers pay and lose revenue of at least $90,000 for each worker that leaves the company.

Sensitivity analysis on cumulative benefits due to high-performance buildings.

High-performance buildings serve as powerful retention tools. People are more satisfied with employers in high-performance workspaces, as they are designed with the occupant in mind. Our analysis of retention research identified a 1- to 10-percent range in increased retention due to high-performance building design. Given the limited availability of retention research, we estimate a 5 percent increase in retention throughout the report.

Health and wellness. The connection between employee wellness and revenue has continued to strengthen. A recent study found that 75 percent of job seekers care that their potential employer supports and values their health and wellness, and 57 percent are more likely to stay with the company longer if they do.

Accordingly, 67 percent of U.S. building owners are interested in creating healthier buildings for people, and 73 percent of employers believe their responsibility to ensure the health and wellness of their employees will increase in the next three to five years.

When connected to the environment through generous amounts of daylight and natural materials, and more comfortable due to improved ventilation, thermal systems and the ability to control their environments, employees can realize a reduction in absenteeism through improved health and wellness. Specifically, a large and robust body of research indicates reduced absenteeism can range from 10 to 50 percent in high-performance buildings. Our research uses an estimated 30 percent reduction in absenteeism in its calculations.

Quantifying the benefits: A new way to value cost. By combining these findings on productivity gains, reduced separation rates and decreased absenteeism, the report quantifies the benefits of adopting high-performance building strategies for owner-occupants and tenants.

In the hypothetical example, an organization gains $3,395 per employee in annual profit, or $18.56 per sf. This totals to a combined benefit of $2.78 million per high-performance building in annual profit, or 6.29 percent of total annual company profit, and an NPV of $17 million over 10 years at a $20 per sf cost premium.

Annualizing the cost of a building, multiple reports show only 1 to 4 percent of the total price goes toward the initial design and construction. For the other costs, a company will spend 80 to 92 percent on people in the form of wages and benefits, and 6 to 15 percent on operations and maintenance. The combined benefit demonstrates a near single-year simple payback period for the conservative cost premium assumed. Cut the benefits of a high-performance building by 50 percent and companies could retain a two-year simple payback period.

Because high-performance buildings enhance productivity, increase retention, and improve employee health and wellness, as well as cut operating expenses and improve resiliency, they bring in a larger return over the life of the investment. Ultimately, no matter the cost to build a high-performance building, the continuous benefits are large enough to outweigh the initial cost over the life of the investment.

Although utility and maintenance cost savings are the most frequently cited benefit of high-performance buildings, they offer some of the smallest financial value. The largest, yet widely unrecognized, benefits of high-performance buildings come in the form of more productive, satisfied and healthy employees. Given this breakdown, human-centric design should be a critical consideration when creating a high-performance building.

Featured in CREJ’s December 2018 Office Properties Quarterly

Edited by the Colorado Real Estate Journal staff.