SustainaWeekly - WfH’s environmental benefits are an additional headache for offices

Strategist: We assess the environmental benefits of the working from home (WfH) shift. Hypothetically a 2 day working from home arrangement could reduce total emissions per square metre per annum from 251kg to 176kg, also taking into consideration the commute. Besides lower rents and transport expenses, this environmental benefit must also sound attractive for tenants who are still in doubt about their future office floorspace requirements.

Policy: ECB has been buying, since October 2022, securities for its CSPP portfolio using its ‘green tilting’ approach, in line with the methodology it set out earlier in the year. We show that utilities and consumer are sectors that have been benefiting from the ‘green tilt’, while this is the opposite for energy, technology and communications. Moreover, the ECB also seems to have bought significantly more green bonds during this period.

ESG in figures: In a regular section of our weekly, we present a chart book on some of the key indicators for ESG financing and the energy transition.

WfH’s environmental benefits are an additional headache for offices

• European and US office attendance remains below pre-pandemic levels.

• We assess the environmental benefits of the working from home (WfH) shift, with an estimate of the lower emissions from lower energy usage at the office and less commuting by car.

• Hypothetically a 2 day working from home arrangement could reduce total emissions per square metre per annum from 251kg to 176kg, also taking into consideration the commute.

• Besides lower rents and lower employee transport expenses, this environmental benefit must also sound attractive for tenants who are still in doubt about their future office floorspace requirements.

The pandemic-induced working from home (WfH) has subsequently become a routine for many office workers and the latest data reveals that, despite Western society relaxing post-pandemic measures for over a year, office attendance has not returned back to pre-pandemic levels. The left-hand chart below shows the office attendance across many large European and US cities. In Europe, attendance seems only near normal in Paris and Madrid. In Stockholm, the attendance would suggest a 1 day of working from home, while in London nearly 2 days are worked from home, all vs. pre-pandemic situations and rounded. Lower attendance automatically means a lower need for office space. Although tenants and landlords are re-organizing space to accommodate a better ‘in the office’ experience, such as larger meeting rooms and lounges, current attendance trends could warrant higher vacancies for office real estate. This is to a certain extent already reflected in actual vacancies doubling vs pre-pandemic levels, shown on the chart on the right. Unemployment remains low, hence the rise in vacancies seems largely driven by the working from home trends.

Working from home actually saves energy and emissions

Some might argue that employees will be more encouraged to rush back to the office due to the more expensive energy bills faced by households. However, the overall savings in energy realized by having employees work from home due to the lower energy intensity in homes actually creates a leeway for employers (the tenants) to beef-up the home working compensation schemes. In the first chart on the next page we show that based on data by Deepki (see here) the average energy intensity per square meter for housing tends to be lower than the intensity for office in the UK, Germany and the Benelux. France seems to be the exception.

Assuming that the above intensities are still based on the old working pattern data, we can roughly calculate intensities by first calculating the intensity per sqm per hour based on a 5 day working from office routine and then reconfiguring for a 2 day working from home routine. This is shown step-by-step in the table below for the average Dutch office property. While office tenant usage (in line with working two days from home and the higher intensity) drops by 40%, employee home usage only goes up by 14%.

The distribution of electricity and gas usage in the office is roughly 40%/60%, while at home it is 20%/80%. Likely the ventilation demand is driving the higher share of electricity in the office space. Given the lower emission factor of natural gas (213 grams per KWh) vs Dutch electricity (418 grams per KWh according to an European Environmental Agency (EEA) reporting for 2021), working from home results, in the Benelux in 24kg less scope 1 and scope 2 emission per total square metre space used per annum, while driving up scope 3 upstream emissions by 6kg per total square metre used per annum, or a net benefit of 18kg emission reduction.

Don’t forget the more polluting commute to the office

Next up is employee commuting, where the savings in emissions tend to be much bigger. An old Eurostat study from 2017 highlighted that in the larger cities, where we would expect the bulk of offices to be present, roughly 60% of commuting is via public transport. A 2018 paper by the EEA shows that train travel emits 33 grams of CO2 per km, while travel by car emits 4.3 times more.

These intensities allow us to calculate a weighted average for commuting to the office, and for simplicity we assume a 60/40 split in travel between train and car and that the commute is 40km daily both ways. Given that the train will continue to drive according to schedule despite workers staying at home, we increase the average intensity for trains by a factor of 1.67 to account for lower occupancy (this is quite conservative as it assumes all train passengers have office as their destination). Next to the 18kg saved per sqm from less total space needed, the 4000 km spent less on commuting reduces emissions by an additional 58kg per sqm per annum.

It goes without saying that our calculations are hypothetical and for example assume perfect attendance planning for the employees staying at home and the ones coming to the office. Still, the savings provide food for thought. Besides the financial gains of lower rents, lower energy & lower employee transportation reimbursement bills, these environmental benefits must also sound attractive for tenants who are still in doubt about their future office floorspace requirements. Occupancy in the office space could therefore be under further pressure.