Commercial property industry: building the foundations

The hand of the commercial property industry is writ large on every urban landscape. As this bricks-and-mortar sector looks to manage its impacts, Briefing asks what’s driving large property development and management companies to get the foundations of good corporate citizenship in place.

Britain’s favourite bard once wrote that greatness could go any one of three ways – some are born to it, some achieve it and others have it thrust upon them. The same could be said of corporate citizenship. Some companies are easy to categorise (think Body Shop or Gap). The commercial property industry, however, which is responsible for developing and managing offices, retail centres and other non-residential buildings, proves harder to classify.

Born into it?

At first glance, the very fact that the industry provides the building blocks – quite literally – of our modern urban economy confers on it special citizenship status. This is the industry, after all, that lent its arm to reconstructing the country in the 1940s and 50s.

Today, companies such as Land Securities, British Land, Hammerson and Canary Wharf Group (CWG) are responsible for shaping everything from the offices where we work to the retail centres where we shop. These give rise to significant social and environmental impacts that are likely to be material to long-term financial performance. Few business portfolios, for example, claim responsibility for “redefining the geography of London” as CWG’s does.

In addition to the magnitude of its impacts, the industry also boasts an innate social function. “Buildings are for people” is the succinct summary offered by David Hampton, chair of the UK Construction Industry Council’s sustainable development committee. An obvious statement perhaps, but one that 1960s functional office blocks suggest has not always been at the heart of developers’ concerns.

Architectural trends aside, the fundamental test of the ‘born into’ category is not necessarily the size or function of a company’s relationship with society, but its history of actively managing such a relationship. It’s a history that the commercial property industry has yet to write. Mike McGuiness, development director at Land Securities, concedes as much when he admits, “fifteen years ago, you could get away with being a faceless developer”.

This no longer seems to be the case. All the evidence suggests that the industry’s leading companies are rapidly taking up the management challenges inherent in attaching a ‘face’ to their commercial activities. Land Securities, for example, is by no means exceptional in now having a Corporate Social Responsibility Committee with senior executive representation, an integrated CSR policy and objectives, and a set of demanding targets ranging from customer satisfaction to crime prevention.

In terms of the industry as a whole, most of the high-profile companies are members of the Property Environment Group (http://www.pegonline.net), which was set up in 1997 to help member companies improve their environmental management practices. The PEG benchmarking survey will incorporate a range of property-specific community questions for the first time this year.

Public reporting provides another good measure of the industry’s progress. This August Hammerson joined British Land and CWG in publishing a stand-alone social and environment report. The document provides a breakdown of the company’s significant social and environment impacts from site selection through to demolition, and mirrors efforts by its peers to match these impacts with some basic performance measures and future targets.

The sector’s main players may not find themselves in the natural-born citizenship league, but they are clearly embracing the corporate citizenship challenge with gusto. So why the sudden change?

Thrust into it?

In as much as the property industry has been ‘thrust’ into its present engagement with the citizenship agenda, it is the statute book and not the campaign banner that has been responsible. A raft of issue-specific environmental legislation has forced through significant improvements in site acquisition, building design and construction, and ongoing property management issues such as carbon emissions and resource efficiency.

Long gone are the days of asbestos use and other major environmental hazards, but the regulator’s hand is never far away. A current European Union directive, for example, proposes the introduction of an energy labelling system for individual buildings, based upon the energy efficiency of their design and ongoing use and operation.

Health and safety marks another area where regulatory pressure to improve standards has had a major impact on industry practice. Although property developers will contract out the majority of the construction phase itself, the leading property companies employ project managers and planning supervisors to monitor and identify on-site health and safety risks.

Quasi-regulatory mechanisms, whether voluntary industry initiatives, such as the Property Environment Group, or non-mandatory government guidelines, such as Westminster City Council’s sustainability guidelines, are also pushing the performance of the industry forward.

Yet regulatory sticks of whatever kind are notoriously blunt. “Some will work hard to meet best practice standards voluntarily, but others will only do it if they have to”, says Julie Hirigoyen, director of Upstream, the consultancy that co-ordinates the PEG initiative. Laggard companies find further excuse in the confusion of the regulatory environment, with every local authority and RDA exercising its right to issue its own social and environmental requirements. All the more reason for developers to show they are setting their own best practice standards, Ms Hirigoyen argues. “By establishing their own best practice codes and CSR strategies, developers can ensure that they are always compliant with planning requirements, thereby helping to speed up the planning process, and reducing the risk of third party challenges.”

Partner

Which brings us on to one of the most unique characteristics of the property industry, and one which makes the sector so difficult to pin down on the citizenship scale – that is to say, the planning process.

The beauty of the planning process is that it provides a model for formalising the kind of quid pro quo considerations that ought to characterise the development plans of every good corporate citizen. Over recent years, resource-stretched local authorities have grown increasingly savvy to the regeneration potential of large development projects, such as the multi-purpose Bullring in Birmingham (see case study box ). As a result, the onus has passed on to developers to provide clear guarantees on how the local community will benefit from proposed new developments.

A renewed emphasis in planning policy towards ‘brown-field’ urban-centre sites, coupled with more mixed-use (i.e. residential and commercial) developments, has handed the regeneration mantle even further on to property developers. It is not unusual now to find developers negotiating ‘win-win’ agreements (what is known in the industry as ‘planning gain’) that assign half the residential quota of a new development to social housing. Job creation targets, local business revenue and transport improvements are also typical of these so-called Section 106 requirements.

While legislation has certainly provided a catalyst for the property sector, the planning process is moving the industry’s main players towards a genuine partnership approach – the seedbed of good corporate citizenship. This marks a subtle, but important, shift away from the minimalist compliance mentality of those typically in the ‘thrust into it’ category.

Achieving it?

So if developers are already going beyond many other industries by factoring social and environmental guarantees into their development agreements, are they really required to do anything more to be considered a good corporate citizen?

If there were no business benefits for them, then presumably the answer to shareholders would have to be a firm ‘no’. All the evidence suggests, however, that large developers are active in a raft of community initiatives that far exceed their contractual obligations. CWG, for example, has supported over 250 projects since 1987, embracing education, employment, health, business development, arts and sports.

Neighbour

One of the main reasons for going beyond its contractual obligations is the industry’s relationship to the local community as its long-term neighbour. An excellent individual example of sustained community commitment is provided by British Land, which recently built a 3,000m2 state-of-the-art training centre at its Meadowhall Shopping Centre in Sheffield. Completed a full twelve years after the site’s initial construction, The Source is designed to raise the skills-base of the local area which qualifies for the European Union’s Objective 1 assistance.

In addition to the new facility’s social purpose, British Land’s motivation has a strong tinge of commercial interest. “The success of Meadowhall relies on people feeling comfortable with it. With out-of-town shopping centres being a big issue, The Source has helped us establish a link with the community”, says Claudine Khatchick, CSR executive at British Land. On a roll, she stresses the added long-term value that the training centre brings to the overall property, as well as the goodwill it has earned the company should it decide to develop the Meadowhall centre in the future.

Emma Denne, head of corporate communication at Land Securities, makes a similar case for the industry’s community involvement activities. “We don’t want to decouple our corporate citizenship from every day procedures”, she insists, before listing off the company’s array of award-winning security programmes, truancy solutions, accessibility schemes and tea-dancing sessions for the elderly. “By doing all these things for the community, we increase footfall numbers in our shopping centres, dwell time and repeat purchases”. Case settled.

While the planning process might encourage the industry towards a heightened awareness of its social responsibilities during the development phase, the real incentive for property companies is captured while operating within the community as a long-term neighbour.

Landlord

Another obvious stakeholder for property developers is the occupier. Obvious though they might be, a combination of long lease agreements and the outsourcing of day-to-day management have traditionally kept the landlord/tenant relationship at arm’s length. This has enabled property owners to claim that the ongoing impacts of a property, such as energy efficiency or traffic congestion, are not their responsibility.

The days of the absentee landlord are coming to an end, according to Upstream’s Ms Hirigoyen. A close observer of the commercial property industry, she identifies a growing trend towards greater service provision: “Companies are beginning to look beyond the properties they own as their major assets and more to the people who inhabit them. This is causing a major shift in the traditional landlord-tenant relationship, with the result that you’re now finding the property services industry talking in terms of ‘customers’ rather than ‘tenants’.” The involvement of developers in Business Improvement Districts, which aim to resolve common social problems such as crime and litter, represents an early example of this new relationship working itself out in practice.

In theory, a social or environmental element to its service package, such as energy efficiency or waste recycling, will become an important driver of client satisfaction for the property industry in the future. The challenge remains, however, to create an occupier-driven market for better corporate citizenship on the part of property developers. Awareness raising will be central to achieving this. CWG’s introduction last year of a Green Canary Day in an attempt to communicate good environmental practice to tenants and visitors demonstrates that some in the industry are willing.

Verdict

The property industry may not be a natural-born corporate citizen, but it has shown strong growth spurts in recent years. While the stick of mainstream legislation may still provide an impetus, particularly through the planning process, the leading developers are clearly discovering strong commercial reasons for going beyond the statutory minimum.

Communicating these reasons to smaller developers, customers and suppliers must become the next step for the large property developers. It will not be an easy task. But achieve it, and a reputation for greatness – or at least great citizenship – could be the industry’s for the taking.

Corporate Citizenship Briefing, issue no: 72 – November, 2003