The commercial case for social value: demand, risk and resilience

Wherever you are in the world, measuring the environmental footprint of real estate follows a relatively standardised process with results that can be compared across geographies: you can measure carbon by the tonne and energy by the kilowatt-hour.

Social value is harder to compare across jurisdictions: its measurement is less embedded across markets, but even where it is present its adoption is more inconsistent. Put simply: social value tends to mean different things in different markets.

Commercial principles behind measuring social value

While we may never reach a fully standardised global methodology for social value measurement – what goods looks for one community may vary widely from what it looks liked in another - what we are perhaps cohering faster around are standardised common principles that will guide such tools.

While there will always be ethical and moral principles present, there is also a strong commercial rationale for delivering real estate that support the gathering and comparison of social value data.

As our colleague Martijn Onderstal, Head of Valuation, in our Netherlands team says: “The question is no longer whether social value matters, but how different markets are starting to price it. Social value becomes real estate value the moment occupiers, investors and lenders start making decisions based on it.”

But value comes not solely from the social outcome itself, but also from its effect on cashflow and risk.

Social value feeding into monetary value

For developers, social value can influence some of the most tangible drivers of actual monetary value. These include tenant demand, occupancy risk and long-term resilience. The buildings that can demonstrate that they care for people are increasingly the ones that attract capital, retain occupiers and outperform the market.

From an investor standpoint, social value is a way of understanding an asset's relationship with the society around it. A full examination of social value benefits can often reveal other commercial risks and opportunities that would possibly be otherwise missed. These could include being able to access to preferential lending and impact-led capital, as well as ultimately boosting long-term asset value.

There’s therefore a robust commercial rationale to measure social value, however the commercial benefits should be more of a catalyst towards better buildings and not the sole end in themselves.

Finally, sometimes subconsciously, social value can often impact decision makers’ judgements. Every person away from their day jobs is inevitably impacted negatively in society by things such as poor health and wellbeing, social inequalities, mental health, and elderly isolation. If real estate assets or businesses act with purpose that creates positive impact in these areas then this will also create positive perceptions that will influence peoples’ future important real estate decisions, without having any tangible metric to measure that influence.