While not unique to architecture (and often credited to IBM’s Thomas Watson), the phrase “Good Design is Good Business” is relevant enough to our market that the American Institute of Architects adopted it as their trademark slogan. McKinsey & Company identified the business value of design in 2018 and released their “McKinsey Design Index (MDI)” to describe the impact of financial performance on firms with excellence in design. Companies with top-quartile MDI scores outperformed their industry benchmarks by as much as two to one.
The McKinsey study focused on over 300 companies across multiple countries and industries. But what about our business – commercial real estate – reflects the importance and impact of design on long term business value?
Lower Maintenance Costs. With good architectural design, we emphasize the use of sustainable, lasting materials. Over time, these materials require significantly less upkeep than their cheaper, commercial-grade counterparts. Also, our strategy for applying good design to “premium” properties means that our target audience is a tenant community more likely to take care of the properties they select.
More Reliable Tenants. Speaking of tenants, good design in the premium market attracts tenants that have deeper financial resources than their peers. While not 100% foolproof, our history has shown that these tenants can survive financial downturns more effectively than their less capitalized peers. UBS reports that since the last recession, net worth is down for all but the top 10% of earners, and in the past decade the number of billionaires in the United States has more than doubled. These tenants can afford to continue making lease payments long after their more leveraged competitors cannot.
Market Buzz. Good design actually helps find those reliable tenants in the first place. When a premium property comes to market, communities and local media take notice and assist in informing the public. Media groups report on the positive news that a new development is emerging, reiterate the innovative design, and applaud the impact on the community. Good design engenders positive market buzz and its integration with growing communities and environment sustainability. This market impact improves the ability to reach new tenants who seek premium spaces.
Better Long-Term Property Value. Any real estate proforma must consider an ongoing cash flow statement. But real estate also provides for an ongoing “real” asset that may appreciate over time. Of course, real estate at the higher (premium) end of the market is more likely to increase in value over a long period. This increase in value produces additional return for investors, as that property either sees a favorable refinancing, increased rent rates, or a high sale price. In any case, a premium property is much more likely to outperform its status quo peers over the course of its lifetime.
Impact to Community. An overlooked aspect of real estate is its potential impact on community. Famed Italian architect Renzo Piano summarized this impact by stating, “You can put down a bad book; you can avoid listening to bad music; but you cannot miss the ugly tower block opposite your house.” With good design, we can have the opposite – positive – effect. Our developments can improve the walkability of neighborhoods, add green space, and integrate with the surrounding landscapes to create a positive, visceral connection with the people nearby. Premium properties attract valuable businesses and add beauty as well as prosperity to surrounding communities.
We believe in Good Design. We believe it provides a powerful way to improve the environments where we work, live, and play. We believe it responsibly integrates with the natural environment and builds a lasting legacy for future generations. And we believe it provides a good foundation for thriving real estate investments. It’s Good Business, through and through.
Burke Cox is the Chief Executive Officer of Premium Property Trust, a real estate investment trust (REIT) focused on the development of premium mixed-use properties that contribute to a new urbanism planning and development approach. He leads a growing team of real estate and finance professionals that enable individual investors to acquire ownership in premium revenue generating real estate. He has a proven track record of successful leadership in rapid-growth organizations that have created over $100 million in ownership equity.