Can Sustainability Enhance Business District Attractiveness? A Survey of Corporate Property Decisions in France

2.1 Hypothesis 1: Green Buildings are Attractive to Corporate Property Occupiers And Can Thus Influence Their Location Decisions

This hypothesis is supported by the literature about ‘green buildings’. The rising emphasis on sustainability in corporate property strategies can first be interpreted as a response to a more stringent regulatory environment. In France, the NRE (New Economic Regulations) enacted in 2001, specifically article 116, make it compulsory for listed companies to disclose information on the social and environmental impact of their business in their annual report. The Grenelle de l’Environnement (two environmental laws voted in 2009 and 2010) defines a strategy for sustainable issues and a national commitment to achieve the objectives of the Kyoto Protocol. Property is specifically targeted through land use and urban planning, and regulations on energy efficiency.

However, the spread of sustainable principles has brought actors to consider the potential value created by buildings’ environmental performance in a context of corporate social responsibility (Pivo and Fisher, 2010). This trend has been broadly supported by the emergence of ratings systems such as the EPA’s (Environmental Protection Agency’s) EnergyStar programme and the LEED certificate awarded by the Green Building Council in the US, the BREEAM (BRE Environmental Assessment Method) label in the UK and the HPE (High Energy Performance) and HQE (High Environmental Quality) labels in France.

Adopting an investor point of view, a very recent and still-growing body of empirical research demonstrates that green buildings can achieve rental premiums, higher occupancy rates and thus higher asset values (Miller et al., 2008; Eichholtz et al., 2010a and 2010b; Wiley et al., 2010; Fuerst and McAllister, 2011). In addition, the ‘green value’ is estimated in terms of the risk and depreciation for investors protecting buildings against premature obsolescence (Sayce et al., 2004; Lorenz and Lützkendorf, 2008; McNamara, 2008). Consequently, improving the sustainable performance of buildings should lead to higher values for investors or landlords, with the increase generally exceeding the extra costs of going green (Bartlett and Howard, 2000; Miller et al., 2010). The UK survey conducted by Atisreal (2008) highlights the potential for lower risks and premium values for investors, whereas Myers et al. (2008) suggest a lower interest in sustainable properties in investors’ portfolios in New Zealand.

The value premium on green buildings is attributed to their attractiveness to occupiers, but surprisingly, fewer studies have looked at the situation from an occupier point of view. Green buildings are expected to attract occupiers due to lower operating expenses deriving from energy efficiency, better productivity and employee wellbeing, potential tax savings and other incentives, and their ‘socially responsible’ image (Heerwagen, 2000; Edwards, 2006; Paul and Taylor, 2008; Brown et al., 2010). The key question is the extent of the occupier’s ‘willingness to pay’ for these advantages (Fuerts and McAllister, 2011). The surveys of occupiers conducted by Jones Lang LaSalle (2008) and Cushman and Wakefield (2009) in London, and DTZ (2009) in Paris, confirm the rising importance placed on sustainability among other strategic factors in buildings’ attractiveness, and a willingness to pay a premium for green-certified buildings, ranging from 1–10 per cent.

While there is certainly an increasing demand for green buildings, as pointed out by Dixon et al. (2009) other traditional factors remain important in corporate property occupiers’ location decisions. These other factors include rental cost and overall flexibility (Gibson, 2003; Lizieri, 2003), the size and decision-making process of the firm (Greenhalgh, 2008) and, most importantly, location itself (Dixon et al., 2009). Location characteristics are fundamental in the firm’s decision-making process. This brings us to the paper’s second hypothesis which posits that sustainable urban attributes are attractive for occupiers alongside other traditional location attributes.

2.2 Hypothesis 2: Sustainable Urban Attributes Are Attractive to Corporate Property Occupiers Alongside Other Attributes when Choosing Their Location

Location characteristics are fundamental in understanding corporate location decisions. The attributes that have traditionally determined a location’s attractiveness are well-documented in the literature.

The traditional neo-classical model for urban rent and location assumes that firms determine their optimal location by reference to rental cost and employee commuting costs (Alperovitch and Katz, 1988). Even if many authors have underlined the unsatisfactory nature of this type of approach which tends to simplify assumptions (Leishman and Watkins, 2004; Greenhalgh, 2008), rental cost and accessibility are still strategic factors in a firm’s location decision (Clapp, 1980).

A second major determinant in such location decisions is agglomeration effects, which explain the formation of business districts by the advantage of the agglomeration of firms and services. Agglomeration effects are widely studied in well-known literature which emphasises externalities due to localised interactions, needs for face-to-face contacts and knowledge spillover (Glaeser et al., 1992; Porter, 1998; Storper and Venables, 2004) and externalities due to proximity to high-order services and highly qualified employees (Sassen, 2002; Coffey and Shearmur, 2002; Duranton and Puga, 2005; Guillain et al., 2006). Agglomeration effects are strategic factors in firms’ location decisions, especially the very selective choice of head office location (Davis and Henderson, 2008). The agglomeration of other head offices and business services has a strong impact on head office location, as do transport facilities such as international airport and recreational amenities which are attractive to a highly qualified workforce (Strauss-Khan and Vives, 2009).

In this article, we hypothesise that sustainable attributes can add to some of these traditional determinants in two ways: in providing recreational as well as environmental amenities, and in promoting centralities characterised by mixed land use and accessibility. Business districts promoting these two types of sustainable attribute are thus able to improve their attractiveness.

Sustainable attributes concern not only green buildings as mentioned in Hypothesis 1, but also urban attributes and planning. Incentives for business districts to provide sustainable urban attributes such as green spaces or modern facilities in addition to green buildings themselves may produce recreational and environmental amenities. Promotion of these amenities improves the district’s attractiveness to a highly qualified workforce, which is a strategic factor for corporate location decisions, especially regarding the head office location. The presence of modern amenities combined with highly valued services and metropolitan functions in a business district can attract a highly qualified workforce through a gentrification process (see Décamps, 2011, in the French context).

The second type of sustainable urban attribute concerns centrality and accessibility. An important body of research on the ‘sustainable city’ focuses on the interaction between centrality and accessibility, from the promotion of a ‘compact city’ (Newman and Kenworthy, 1998; Gordon and Richardson, 1997) to a ‘polycentric city’ (Giulliano and Small, 1991; Anas et al., 1998) where the population can live closer to their workplace and urban facilities are located in sub-centres linked by an efficient transport system (McMillen, 2001). Thus business districts can provide sustainable attributes by promoting mixed land use and accessibility, which are strategic factors in firms’ location decisions.

The ability of business districts to provide green buildings (Hypothesis 1) and sustainable attributes (Hypothesis 2) may be broadly supported by an urban project, or ‘mega project’ (Fainstein, 2009), depending on the district’s willingness to mix sustainability with traditional determinants of attractiveness. The combination of Hypothesis 1 and Hypothesis 2 suggests that sustainability can be an important factor in attracting corporate property users to business districts alongside the more traditional factors identified in the literature.

4.1 Towards a Typology of Property Managers Regarding Sustainability

To interpret an MCA, the absolute contributions and squared correlations are calculated for each axis (see methods by Greenacre, 1984). Table A3 (Appendix 2) presents the basic numerical results of the MCA analysis for the first four dimensions (i.e. factors). The contributions are coefficients of determination giving the explained variance for each variable by each axis or factor. Figures 1, 2 and 3 show the MCA maps created by combining the first four axes of inertia, representing a cloud of modalities.

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Figure 1.

MCA results, plan 1-2.

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Figure 2.

MCA results, plan 1-3.

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Figure 3.

MCA results, plan 1-4.

The exercise consists of clustering and grouping modalities. This gives strong and interesting results. The first two-dimensional map (represented in Figure 1) alone explains 75 per cent (52.10+22.89 per cent) of the total inertia of the 20 active variables. We identify and interpret patterns in the data by representing the associations between different categories of variables and between the respondents graphically, as points mapped on a low-dimensional Euclidean space. To interpret the map, we examine the positions of the points in a given cloud, relative to an axis. If two such points are close on the map, they will have a similar profile. Graphically, the further a point is from the origin, the smaller its marginal weight and the bigger its contribution to inertia. Similarly, the smaller the distance between a point and an axis, the closer to 1 is its squared correlation on that axis. The variables with the highest weight and contribution are included for interpretation of the axis on the three different maps (Figures 1–3). The underlined variables describe environmental and sustainable issues.

In Figure 1, the cloud of modalities in plan 1-2 is homogeneous in form. No quadrant of this plan is empty and many modalities are positioned at the extremity of the axis, indicating that several of the survey questions have contributed to discriminate the sample population. This gives an interesting view of how the different actors value sustainable issues. Using Table A3 to identify the important points in the map, we see that the first factor groups together the following variables, in order of explained variance

These features represent almost 55 per cent of the variance explained by the first axis. In Figure 1, we observe from the left part of the first axis that listed companies are more strongly associated with consideration of green building certification when choosing a location or assessing territorial attractiveness. Listed companies are also strongly associated with a workplace management policy and an interest in employee wellbeing. Symmetrically opposite, on the right-hand part of the first axis, we see that Notlisted companies are associated with lower consideration for these sustainable principles.

The second axis mainly illustrates the following factors

This second axis separates companies which own their head office and more broadly their office space, and are located mainly in Zone 1 (Paris and Western Business District) or Zone 3 (outside Ile-de-France), from companies which rent their head office and own a small portion of the office space occupied, located mainly in Zone 2 (Ile-de-France excluding Paris and Western Business District). From Figure 1 we observe that the first group (owners) are close to the left-hand part of the first axis, indicating a strong consideration for sustainable principles, whereas the second group (tenants) are close to the right-hand part of the first axis, indicating a weak consideration for sustainable principles.

The third axis is explained mainly by the following factors (Figure 2)

This axis groups companies from the industry sector which consider proximity to other firms, services and the district profile when choosing a location. On the opposite side of this third axis, companies from the service sector mainly located in Zone 2 are associated with low consideration for these factors.

Lastly, the fourth dimension groups variables such as

From Figure 3 we observe that this dimension emphasises two main groups

Through the use of MCA, interesting new testable hypotheses are developed regarding the linkages between types of companies, sustainability issues in corporate property decisions and business district form. The results of our study show that the validation of Hypothesis 1 and Hypothesis 2 is strongly associated with the following characteristics: being listed or unlisted on the stock exchange, owner or tenant of the head office, the amount of office space owned and the head office location.

These results are analysed in the following sub-sections. The use of non-parametric tests allows us to sharpen the interpretation of the importance of sustainability by the different groups of actors.

4.2 The Importance of Sustainability for Location Strategies and Business District Attractiveness

The MCA results allow us to identify the main characteristics of companies according to the importance they place on green buildings (Hypothesis 1) and sustainable urban attributes (Hypothesis 2). This brings out three main results.

The first important result is the association between listed companies and sustainable development concerns, as represented through the first axis of the MCA which explains 52 per cent of the variance. From Figure 1, we observe that listed companies value green buildings and the existence of a SBD (sustainable business district) as an indicator of territorial attractiveness. Listed companies are also associated with management practices such as space planning and the evaluation of its impact on employee wellbeing and performance. This result is confirmed by a non-parametric chi-squared test conducted to estimate the relationship between the Listed or Notlisted variable and the variables representing sustainability. Table 1 presents the variables which are statistically significant.

This strong impact of sustainability for listed companies can first be interpreted as relating to more stringent regulations. As mentioned earlier (see section 2), France’s NRE law of 2001 makes it compulsory for listed companies to report on the social and environmental impact of their business as an incentive for social responsibility. Nonetheless, this result demonstrates the rising importance placed on sustainability by listed companies, especially concerning location decisions.

The second key result of this study concerns ownership of the head office and, more broadly, of the office space occupied. Companies are differentiated according to their interest in ‘green’ buildings when choosing their location. Ownership of the head office seems to be the major distinguishing feature of companies along this axis, even though the amount of office space owned follows the same pattern. Throughout Figures 1, 2 and 3, we observe that the owner group is always associated with a strong concern for sustainability issues in their location choice, whereas the tenant group seems to be more sensitive to rental cost when choosing their location. This result is confirmed in Table 1 by conducting a chi-squared test on the Owner or tenant of the head office variable. We find a statistically significant relationship between this variable and the variable highlighting cost as the main determinant of the location decision. This group of actors is thus clearly differentiated by the determinant of their location choice: cost vs green buildings.

This result can be interpreted by reference to the concept of ‘green value’ mentioned in section 2 part of this paper which highlights that green buildings on average command higher rental premiums, higher occupancy rates and thus higher asset values. This is confirmed by our study revealing the owner group’s interest in green buildings when choosing their location, whereas the tenant group is more sensitive to cost. Green buildings may imply higher values for owners, but the rent premiums may imply extra cost for tenants. Our results show that, while owners have fully integrated the potential value of green buildings into their decision-making, tenants are still more sensitive to the extra cost, even when there is long-term potential for lower operating expenses. This result is consistent with corporate property literature: tenants tend to be more cost-centred organisations interested in sufficient flexibility to expand, contract and relocate; whereas owners considering long-term investments are more sensitive to potential value and risks.

The third main result of the MCA approach is the impact of head office location in explaining the consideration given to sustainability in the corporate decision. It is interesting to note that companies whose head office is located in Paris business districts are strongly sensitive to sustainability issues. Throughout Figures 1, 2 and 3, the variable Zone1: Paris and Western Business District is strongly associated with the left-hand part of the first axis representing a concern for sustainability. This is confirmed by the chi-squared test conducted between the Head Office Location variable and the variables representing sustainability (Table 1). This test shows that companies whose head office is located in Paris business districts are strongly sensitive to the existence of a SBD, in addition to factors that traditionally determine a business district location, such as proximity between firms and district profile. This result strongly supports our hypothesis that sustainability (alongside other factors) is a way to make business districts more attractive.