GOOD IAQ – GOOD BUSINESS CASE

Good indoor environmental quality is an excellent business case for all stake holders. Tenant organisations are one of the biggest beneficiaries through more productive and healthy employees. These monetary benefits should be shared with the building owners who receive higher rents and longer contracts. This, in turn, enables investors to pay higher price from buildings that have a record of good indoor air quality.

value-creation

Here is an example of business benefits when IAQ is improved in an office building in India:

  • Annual CTC is INR 6,00,000 per employee;
  • Rent before improvement is INR 120 per square foot a month;
  • Occupancy: 1 person per 100 square feet;
  • Owner invests INR 150 per square foot to improve IAQ;
  • Annual maintenance cost increases INR 10 per square foot;
  • Due to the investments in IAQ, owner increases rent by 5%;
  • Due to the improved IAQ, workers’ productivity increases by 2% (10 min/day) and each worker is 1 day per year less in sick leave.

The building user will benefit as follows (INR/person):

  • Increased productivity                       12,000
  • Reduced sick leave days                       2,300
  • Increased rent                                         -7,200
  • Annual profit                                       +7,100 INR/person

          1.2% decrease in annual salary costs.

The building owner will benefit as follows (INR/ft2):

  • Increase in rent income                          72
  • Investment (3 year pay-pack)             -50
  • Annual IAQ maintenance                      -10
  • Net annual operating profit              +12 INR/ft2

         +1% net increase in rent income (first 3 years).

Higher rent income has also a direct impact on building’s value today (discounted cash flow method). In this case the building value increases INR 1,000 per square foot i.e. +5% (calculated using 9 year contract time, 4 free months and 6.25% capitalization rate). Continuously good indoor air quality is also linked to the risks related to the investment like occupancy rates and churn costs.

In a retail business the annual INR 60 per square feet investment means in a 15,000 square feet store the extra annual cost of INR 9,00,000 during first three years. In case better indoor air quality increases the customer flow and the daily sales more than INR 3,000 (e.g. 2 kurtas), the investment creates a positive income to the company.

Similarly, in a hotel business in India:

  • Room rate is INR 6,000 per night;
  • Quest room size is 300 square feet;
  • Investment of INR 150 per square foot is made to improve IAQ;
  • Annual maintenance cost increases INR 10 per square foot.

The annual investment (pay-back time of 3 years) per quest room for IAQ is therefore INR 18,000. In case each room is sold extra 3 nights per year (i.e. 1% increase in occupancy rate) during the first three years, the hotel is having a positive cash flow due to the improved IAQ.

A 5,000 square feet restaurant invests INR 150 per square foot to improve IAQ and INR 10 Lakhs for safe and efficient kitchen grease exhaust system. Annual maintenance cost is INR 10 per square feet. Average spend by a couple is INR 3,000 and that leaves a profit of 30%.

In case the restaurant is making profit extra INR 2,000 per day (another 2 couples to dine every night) during the first three years, the restaurant is having a positive cash flow due to the improved IAQ.

In a retail business the annual INR 60 per square feet investment means in a 15,000 square feet store the extra annual cost of INR 9,00,000 during first three years. In case better indoor air quality increases the customer flow and the daily sales more than INR 3,000 (e.g. 2 kurtas), the investment creates a positive income to the company.

Continuous, online air quality monitoring results displayed in a common area of building would provide the best “IAQ certification” for building and at the same time would create the continuous record of IAQ performance. The business benefits can only be achieved if the building occupants or customers are aware of high quality indoor air.

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