While sustainability is important to me, I would be lying if I told you that when I co-founded Knotel I deliberately set out to create a sustainability company. The reality is that we created the company to make offices work better. We figured that by creating spaces that follow best practices in workplace strategy and reduce their operational complexity we could help both tenants and landlords make the most of the expensive real estate that they own and occupy.
But as the company grew, we discovered something surprising: flexible workspaces have a powerful positive impact on the environment.
Thanks to our economies of scale (we now have over 200 locations in 15 cities), the work we do is able to help reduce offices’ impact on resources and, hopefully, positively affect the ongoing climate crisis. Although we’re still in the early stages of the shift from traditional long-term leases to flex, commercial real estate can become greener through flexible workspaces.
This comes at a time when there seems to have been a shift in the business world that has companies, from the smallest startups to the biggest global enterprises, clamoring for more environmentally friendly ways of doing business. Commercial real estate owners, tenants, and brokers can’t afford to ignore the sustainability imperative. But doing so will require some fundamental shifts in the way we think about space, construction, and workplace operations.
The benefits of sustainability far outweigh the costs, which becomes more apparent as you start to think on longer and longer timelines. Apart from the boost to a company’s reputation, going green can create distinct economic advantages that can help any business outperform its competition. We believe in this principle so much that we’ve directly included it on our executive agenda. I believe that every company that works in or touches real estate should do the same. Here’s why.
The Cost of Empty Desks
First and foremost, putting businesses into the wrong workspaces is bad for the environment.
When businesses sign traditional, long-term leases, they often get the wrong amount of space (generally, too much). As a result, they end up having unused space, or “gray space,” that’s a major drain on resources. All that unused space still needs to be maintained with lighting, heating, cooling, and other energy-consuming features. In 2019, approximately 13 percent of office space in the U.S. remained unused, according to the National Association of Realtors. With around 90 billion square feet of office space in the U.S. alone, that accounts for almost 700 million square feet of unused space.
To put that into perspective, the largest U.S. commercial office REIT, Boston Properties, has around 50 million square feet under management, so around 14 times the size of its portfolio is sitting empty every day. It’s even more alarming when you consider that about 18 percent of all of the energy used in the U.S. comes from office buildings.
Then there’s the problem of moving. Businesses will typically relocate when they grow or shrink in size. That forces them to go through the time-consuming process of breaking their leases, moving their entire operation, and spending a lot of resources setting up new infrastructure. Relocating a mid-sized business can result in hundreds or even thousands of hours of lost productivity. That process also has a steep environmental cost. Around 100 billion cardboard boxes are used each year in the U.S., and much of that total is driven by relocation. This cycle produces 850 million tons of cardboard waste annually. To put it in stark terms, that’s about 1 billion trees thrown out every year. The miscalculation of space also drives demand for new construction projects, and that is hugely impactful on the environment.
So what’s the solution for optimizing space? The first thing is to move away from long-term leases in favor of more flexible options that can adapt to a business’s changing space needs. That’s why flexible workspace platforms offer short-term leases, which tend to reduce the amount of excess space that enterprises end up with.
Creating a flexible option has a positive effect on the real estate industry because it brings more liquidity to the marketplace. More liquidity leads to more efficiency. It also helps customers be more agile and make decisions faster. They don’t need to worry about real estate and office matters in which they don’t have specific expertise or competitive advantages.
This flexible approach helps eliminate gray space, reduces the total resources businesses burn through, and cuts down on relocation waste. It’s a win-win for enterprises and the environment.
You Have to Break to Build
Construction takes a heavy toll on the environment. Much of that is due to inefficiency.
Let’s break it down on a per project level. Construction of a mid-size office building containing 50,000 square feet produces approximately 100 tons of waste. If that same project involves demolition, the total shoots up to 4,000 tons, or about 155 pounds of waste per square foot. All of that ends up in a landfill, which is why construction waste accounts for 40 percent of the material in U.S. landfills.
That’s an astonishing number, and we should all be asking ourselves, “Why is it so high?” The likely culprit is reworking. Nearly every building project involves a rework, and reworking consumes around one-fifth of all construction-related costs. Avoiding these reworks requires a new way of doing things—one that allows spaces to be altered without having to demolish or dispose. And that’s where flex comes in.
The flexible workspace model relies on efficient buildouts that are designed to be modular and reusable, which dramatically cuts down on landfill and wastefulness. The idea is to replace construction with assembly and rely on modular architectural objects, like conference rooms that can be assembled within hours or kitchenettes that arrive flat-packed and are assembled next to a wet wall. This flexible approach reduces upfront building time by as much as 20 to 50 percent, saving companies money and resulting in less material waste, less refuse being sent to landfills, and less energy usage associated with long building projects.
Flexibility also produces up to 25 percent energy savings and a potential reduction of on-site material waste of up to 90 percent. Since construction in its current state already consumes 40 percent of the world’s raw materials and generates 38 percent of all carbon dioxide emissions, these flex-related reductions can have a sizable impact on the planet.
In other words, if we can build better spaces, we can literally make the world a better place.
Furnishing Our Future
Imagine buying a sweater, wearing it a couple of times, then throwing it away. Wasteful, right? Well that’s essentially how enterprises treat their furniture. U.S. businesses spend about $54 billion a year buying office furniture, at an average cost of $25 per square foot of space. Of course, that furniture starts losing value immediately after purchase and must eventually be thrown away at an additional cost of $2 per square foot.
As a result, around 17 billion pounds of business equipment and office furniture is dumped into landfills every single year—a staggering amount of waste. And since most desk chairs and workstations are composed of wood, metal, and plastic, a huge amount of potentially reusable material is squandered.
Office furniture ownership clearly isn’t a sustainable practice. To address changes in construction and furnishing, we created Geometry, an on-demand modular furniture service. We started with desks, both regular and sit-stand, as well as phone booths, which are now best-of-class on the market, and modular conference rooms for up to 10 people.
Companies can now rent a lot of what they need for their workspace, saving on capital outlays and eliminating the need to dispose of furniture. They can easily swap out their furnishings for new items to refresh their space when they need to, and their older furniture can then be refurbished and reused. It’s a more sustainable and circular model—and much friendlier to the Earth.
ROI = Responsibility of Investment
In commercial real estate, or any other industry for that matter, simply chasing profit is no longer enough. Modern enterprises recognize the need to be responsible corporate citizens by making positive social and environmental impacts. They’re also seeing that being good is good for business.
Reports show that companies that are highly rated for their corporate social responsibility see an 86 percent increase in employee happiness and a 76 percent boost in employee effectiveness. Simply put: companies with strong records on social and environmental metrics secure more business, enjoy higher productivity, and win in retention and recruitment.
The old way of doing things is a path toward economic and environmental loss. We need to adapt to a changing world and find a sustainable road toward the future. In other words, when it comes to offices, gone are the days when the enterprise doesn’t think about flex. The flexible workspace market has posted 23 percent annual growth since 2010. In 2018, flex accounted for nearly two-thirds of U.S. office market occupancy gains, and it’s projected to account for 30 percent of all global commercial real estate by 2030.
When it comes to the environment, commercial real estate can do better. Renewable energy will account for 50 percent of global electricity generation by 2030. If sustainability is truly important to the commercial real estate industry we should see a similar growth in flex space. No matter what your political views or how profitable your company is, taking a long-term view of success is critical for growth. Saving our planet should be on top of everyone’s agenda from now on.