One Take #14 - Healthy Buildings Command Higher Rents, But Location Matters More

What's the true financial value of a healthier workplace? This episode of Air Quality Matters dives into research from the University of Cambridge that quantifies exactly how much companies are willing to pay for healthier office environments.

The research reveals a significant "health premium" of 4-6% for buildings certified under health-focused standards like WELL and Fitwell. This represents a tangible financial incentive for property owners to invest in features that enhance indoor air quality, lighting, comfort, and other elements that benefit human health beyond just energy efficiency.

But here's where it gets fascinating: when comparing indoor health factors to outdoor characteristics, neighbourhood walkability emerged as an even stronger driver of rental prices than building certifications. Companies clearly value locations where employees can easily walk to amenities or use public transit. Meanwhile, the counterintuitive finding that higher outdoor air pollution sometimes correlates with higher rents reveals how economic density in city centres often outweighs environmental concerns.

The holistic message is clear: the market increasingly values healthy environments both inside and outside buildings, even when these factors aren't explicitly advertised. For developers and building owners, this means considering the entire health ecosystem, not just isolated features. You simply can't build a healthy building in an unhealthy location and expect to maximise its value.

Whether you're in commercial real estate, workplace design, or just interested in the economics of health and sustainability, this episode offers valuable insights into how the market is beginning to quantify the long-understood but previously unpriced value of healthier spaces for workers.

Indoor and outdoor health factors in the pricing of commercial real estate:
A hedonic analysis of U.S. office buildings

Chapters

• 0:00 Introduction to Healthy Buildings Study
• 1:48 Hedonic Analysis and Data Collection
• 4:05 Health Premium Results Revealed
• 5:14 Walkability vs Air Quality Findings
• 7:00 Location Trumps Building Health
• 8:08 Conclusions and Implications

Transcript

Speaker 1: 0:14

welcome back to air quality matters, and one take one take my take on a paper or report on air quality, ventilation and the built environment. One take in that it's well in one take and tries to summarize for you a scientific perspective on something interesting in well, usually 10 minutes or less, because who has the time to read all these amazing documents? Right? This week we're looking at a really fascinating question that sits right at the intersection of public health, environmental science and cold hard economics. The paper is called indoor and outdoor health factors in the pricing of commercial real estate a hedonic analysis of us office buildings, and it's by katharina minkow and franz, first at the university of cambridge now. For years we've talked about the green premium, the idea that energy efficient, environmentally friendly buildings can command higher rents or sales prices. That's pretty well established. But this paper asks a more direct, more human-centric question what about a health premium? Do companies actually pay more for rent for an office that is demonstrably healthier for the employees, and how does the healthiness inside a building stack up against the healthiness of the neighborhood outside? It's a massive question for real estate industry and this paper dives into some serious data. So let's get into it. First a quick word on what we mean by a healthy building. The authors are primarily looking at buildings certified under schemes like well and fit well. These are standards if you don't know them that go beyond just energy. They look at the whole range of factors that impact human occupants, like indoor air quality, water quality, lighting, acoustics, comfort and even features that promote movement and mental well-being. So we're talking about explicit focus on human health.

Speaker 1: 2:23

The core of the study is what's called a hedonic analysis. That sounds complicated, but the concept is actually quite simple. It's like trying to unbundle the price tag on a car to figure out how much you're paying for the leather seats, how much for the bigger engine and how much for the sunroof. In this case, the researchers are trying to unbundle the rental price of an office building to figure out how much the tenants are willing to pay for a specific feature, including a healthy building certification, good outdoor air quality or being in a walkable neighborhood, for example, and to do this they assembled a monster data set. This is no small feat. They pulled together data from nine different sources covering thousands of us office buildings. They had the rental data, the building characteristics, the well and fit well certifications, and then they layered on top of that a whole load of outdoor factors. They used the EPA data for outdoor air quality, looking at pollutants like ozone, pm2.5 and NO2. And they used hospital quality ratings and distance to the nearest hospital. And, crucially, they used walk scores data as a proxy for how easy it is to have an active commute or walk to amenities. They then used some fancy statistical matching to make sure they were comparing like with like. So a shiny new certified building isn't unfairly compared to a 50-year-old uncertified one, for example. So the big question do these healthy, certified buildings actually get higher rents? The answer is pretty clear yes. Across their different models, the authors found a rental premium of between 4% and 6% for buildings with standards like Well and Fitwell. That's the headline figure. It's a tangible, significant financial return. It suggests the market really is starting to put a price tag on a healthier indoor environment for workers. But it does get interesting.

Speaker 1: 4:29

The researchers didn't just look inside the building, they looked outside and the results for the outdoor factors were complex. Let's start with the superstar of the outdoor factors walkability. The paper found a strong, positive and significant link between what they call an active commuting score, basically how walkable, bikeable or transit friendly a location is, and higher rents. This makes total sense if you think about it. Companies are willing to pay more for offices in vibrant, accessible neighborhoods where employees can easily walk to lunch, cycle to work or hop on public transport.

Speaker 1: 5:10

Now here's the slightly weird part, and it's directly relevant to us. The results of outdoor air quality were mixed and, frankly, counterintuitive in some places. In most of their models, they found that higher levels of outdoor air pollution were actually associated with higher rents. This sounds a bit odd, right? Why would anyone pay for an office in a more polluted area? It's likely because in a big US city, outdoor air pollution is often a proxy for something else economic density. The very heart of the central business district, with all the skyscapers, the traffic, the economic activity, that's where the rents are highest. It's also where the local air pollution is often at its worst. So what the model is likely picking up is not that people want pollution, but that the powerful economic draw of a dense city centre is simply a much stronger driver of rent than the negative effects of its associated air pollution. The value of being in the thick of it outweighs the disbenefit of air. It's fascinating, if slightly depressing, to be honest, honest.

Speaker 1: 6:24

So, when you put it all together, what's more important the healthiness of the building itself or the healthiness of its neighborhood? This is the paper's final and most powerful conclusion, I think. After ranking all the different factors, they found that overall, the neighborhood characteristics, led by walkability, have a larger cumulative impact on rent than the building's health certification alone. The healthiness of the location, it seems, is priced in even more strongly than the healthiness of the building. So, to wrap this up, what's my take?

Speaker 1: 7:03

This paper is a brilliant piece of work on the evidence. It confirms that the healthy building movement isn't just a fad. It's a genuine, measurable health premium of around four to six percent in the us office market. That's a huge business case for investing in better indoor environments. But the bigger story here is about the holistic nature of health, walkability and air quality. That shows the market is implicitly pricing the health of the entire environment, both inside and out. It's fascinating that the market values these things, even when they're not explicitly listed in the rental brochure. It suggests a powerful underlying demand for healthier places that we're only just beginning to quantify, even if that is centered around it being in a bustling city center, and for any developer or building owner. The message is you can't just build a healthy building in a sick location and expect to maximize its value. You have to think about the whole package. Thanks for listening. That's this week's episode of One Take. I hope you enjoyed it. These episodes aren't possible without our sponsors, safe Traces and Imbia. I'll see you again next week.