Redefining the Value of Sustainable Development with Coen van Oostrom of EDGE

Speaker A: Welcome to the Purpose of Place podcast. I'm Despina Katsakakis, your host. I'm delighted to have with me today Koen von Ostrom, founder and CEO of Edge, a, uh, very unusual tech focused, sustainable developer that really has revolutionized the industry in terms of focusing on buildings that enhance both the environment and people's well being. So welcome.

Speaker B: Thank you. What an introduction.

Speaker A: Well, you've often said that the real estate industry is stuck in the past. And a lot of what you have done with your business, uh, has really looked at how you create more resilient buildings that really focus on the planet and focus on people. And I think you've probably proven that things that are good for the planet and good for people are actually good for business too.

Speaker B: Absolutely.

Speaker A: So, uh, take us a little bit about how you made that departure.

Speaker B: I think when I grew up, I always got the feeling that, um, you know, being in real estate was about growth and about being successful. I read the Trump book the Art of the Deal, and that was sort of, uh, you know, one of those books coming out of the 80s that everybody was talking about. And then years later I met Al Gore and I thinking of, in terms of politics, around the topic of a building and uh, around topics of sustainability really make a lot of sense. And that if you actually look at a problem like sustainability and you want to change that, you need a lot of innovation. And what I found, you know, crazy was how few companies were actually having an R&D department, were having innovation people that had a focus on making buildings more efficient. And from there, from that starting point of sustainability, um, we suddenly started to realize that. And it wasn't not so much only about sustainability, it's also about, you know, people working in funny cubicles with no light. Um, it was all about so many other topics that basically make people unhappy in the work workplace. And, um, then we started to learn about, well, and we started to learn about all kinds of certifications. But the basic was that that's, you know, the drive for sustainability started to drive for innovation and having people focusing on what are the universities doing, what are big companies like Schneider elect on how can we as quickly as possible take that into our buildings? Was a huge game changer that started to sort of open up a whole new reality. And then Covid came and in Covid, suddenly, uh, there was a question. Why would you want to be in an office? We can also work from all kinds of other places. Now we see the reversal of that at the moment, uh, we have made a building for Amazon. Amazon just announced everybody back in here in the office five days a week. Um, but then the office have to be way more attractive than they were in the past. And I think that the journey of offices, uh, 25 years ago to where we are today and where we will be in 10 or 15 years, it's super exciting. It's one of the most exciting times ever.

Speaker A: Well, I think as a company, what I find fascinating is that you've actually tapped into what I think is the most exciting piece of change that's happened, which is the integration of technology in buildings to allow you, in real time, to be able to understand the use of the building, the impact on the people, the impact on carbon, the impact on cost, and, of course, Edge. In 2014, with Deloitte in Amsterdam, I think it's fair to say, redefined the market in terms of a. That interactive building, uh, experience.

Speaker B: Yeah. And we were actually just in a race to get the highest beam score ever, uh, because that was what was promised to, uh, Deloitte. And we found out that bringing in sensors would give us extra points. And therefore we started to do it. And only later we learned, um, that with that data you can do so many other things. And, uh, one of the very simple things is, um, uh, we have two big battery dynamos in that building. And then we learned that we only used one, and that second one was completely redundant, and therefore it was possible going forward to be more efficient in working. We learned that people were using certain parts of the building much more than other parts of the building. And we started to ask ourselves why. And then we started to experiment and we put in blue couches and red couches just to see, uh, are, uh, people using the blue couches more than the red couches? And there were so many learnings in that building that it became really fun. By the way, we also learned that in that first building, most of the technology didn't really work at first, that we had to redo it. I think we changed all the sensors, we changed the software twice, uh, before we got it right, uh, but now, um, there is a technology out there. We have it. There's a couple of other companies that have it that integrate that sustainability part, the usage of the building, the health, air quality, lights, uh, all kinds of other stuff, and it makes the buildings a lot more fun.

Speaker A: Well, you said something really interesting there in describing it, how things didn't work and what you learned from it. And I suppose one of the things that I've always struggled with in our industry is that we've always looked for the right answer. But actually what you're describing is a much more iterative and evolving approach to how the building adapts and becomes resilient over time. And I think that's potentially where the future is, is a building that actually evolves with use.

Speaker B: Yeah, I think you're absolutely right. And that also means that the way that we present our buildings is going to be different. Um, when we started, I was looking for some very simple metrics to see how we could make building sustainable. And I've learned that our engineers really needed that. They just say, okay, give me, give me a goal and we'll make sure that we engineer the building in that direction. And for us the goal became briim. And you know, we would just say get to the highest briim level or a certain percentage and then you're good to go. But what we saw later is that some of these buildings completely underperformed. And so you can have a building where you get a lot of points for, uh, for bicycle parkings or for electrical vehicles and all kinds of other points, but the energy management of the building is still way off. And we started to see that there's a couple of other KPIs, way more important. Energy consumption, carbon, uh, and body carbon. And also, uh, let's say the health of the people working in the building, which you can measure in air quality and other things. And today what I think the holy grail is that we are going to give a guarantee to our tenants that a certain quality level, both in sustainability and health in the building and other parameters is going to be guaranteed and that the, the rent levels are going to be dependent on, you know, whether we are going to be able to, to reach that. Now this is still something that is complicated. And why is it complicated? Because our market is so fragmented. We have to do with construction companies, with planners, we have to do with investors. In the past we sold most of our buildings. And if you then sell it to, let's say a big German open ended fund, then it depends on the quality of these people, whether you can actually keep to that commitment that you gave to that tenant. Uh, let's be very honest, not all of those investors are already up to speed with the newest technology. Some are, but not all of them. And what we now want to do going forward, we don't really want to sell our buildings anymore, but we do need the equity of some of these investors. And so we want to look at fund structures where we bring in capital from the Outside, but where we keep, let's say, control over that promise, which is important for the customers that we have, the tenants that we have. Um, and actually I think in the end also for the investors that they know that this is a high quality product. What has changed? What has changed is that back in the day if a building were just concrete and glass and steel, you didn't really have to do that, then anybody could run that building. But these high performance buildings, they like Formula one cars and if you don't have them exactly running in the right way, in the right setup, they actually underperform. And so we have seen buildings that had everything in it and where the customer would say, oh wow, this is a, uh, BRI outstanding and a, well, platinum and everything's in it. And then they looked at the energy consumption, they're like, wow, there's actually more energy consumed, consumed than in our old building. That all these great things. And that's where you then have to come in with smart management and really look at data on a day by day basis and making sure that the building is performing the way it is designed.

Speaker A: So the building then becomes this dynamic organism that you are monitoring and adapting over time. And what's interesting, what you said about the way you're looking at funding and operating these buildings is that you're then looking to take a longer term investment view to be able to validate and demonstrate um, the value you bring to, to the occupiers, which presumably will enable you to command higher rental levels and higher long term investment value from the building.

Speaker B: Yeah, then there is a little bit of a hurdle and that is that a typical uh, tenant, they will talk to a broker or you know, get a consultant in or an advisor in and they will make a overview of all the offers in the, in the market at that time. And then I can make promises about guaranteeing sustainability scores or energy or other levels. Um, but if that's not reflected in those overviews, then they might rent somewhere else and go for the short term solution.

Speaker A: Well, uh, I think it's a hugely important point because it's how do we measure the value of the building and the value to whom? Because ultimately we know that as an industry we've looked at the value to the occupier based on rental levels and you know, the cheapest per square foot cost will win out. But if you mentioned uh, a few minutes ago about air quality, for example, we know that better air quality impacts cognitive performance, enables higher productivity. Um, you know, if people leave the building feeling better than when they arrived. They will be more engaged with the company. Are you starting to create those more complex business cases that you can counter those short term?

Speaker B: Absolutely. And um, what we are trying to achieve at the moment is really getting to um, let's say educating our customers both on the investor side, uh, and also on the tenant side. And the great thing is we have a couple of real life examples at the moment and so we can take people, let's say for example to Amsterdam where we have most of those buildings and really show them the live results of uh, let's say the outcomes of those processes. And we now have the data points, we have the censoring, we have the software where we can show them what is going well, what went wrong, how we solved the things that didn't go so well and how you get a high performing building people nowadays from us, get an app and they can personally change the temperature at their workplace. They can change the light setting, um, they can change the blinds. They have a very simple app that always works and that can do that.

Speaker A: Well, I think the customization that you're describing is particularly important and interesting in light of the post Covid, uh, purpose of the office. Why will people want to come to the office if there is no mandate for them to be there? So the experience that you're able to create and the ability of the end customer, the employee to adapt that experience to make it most effective for them becomes incredibly interesting and important. One of the things that's changed um, again post pandemic is that many of the people that historically would be responsible to sign the leases at the tenant side are now shifting from reporting to the CFO to reporting to people that are ahead of strategy and people. So that relationship um, between the landlord and the occupier has shifted quite significantly in the last few years to be much more of a B2C relationship with a long term perspective of partnership. Which is a little bit what you're describing.

Speaker B: Absolutely, absolutely. And um, I think that that will drive in the end the quality push that we are now making. And I have wondered in the last couple of years what is going to be the future of offices. Um, and I think that there's still a uh, huge threat out there and that threat is AI. Um, because if the trend is continuing the way we're seeing that now and AI can mean that white collar jobs are going to be kicked out and also the role of the office is going to be um, changing. But what you do see coming from uh, Covid, uh, Post Covid and now the future with AI is that if you are going to the office, it's all about collaboration, about working together, about basically we can still work everywhere we want in all kinds of places in the world, but when we get together we need to communicate. And I would still say that 90% of the offices are not designed for that communication.

Speaker A: Exactly.

Speaker B: And so what we might see is a total office market that will not um, grow anymore and maybe even shrink a little bit, but where there will be a huge investment in the quality of the stock both on um, let's say the hardware, the core and shell, making them more sustainable, healthier, et cetera, but also in the fit out that is going to be all in the direction of more collaboration, fun. And I would say a ping pong table won't do it anymore. It's really about all the other things that you can do together.

Speaker A: More immersive experiences, curated events and so on. It makes me think of an interesting point because one of the um, aspects that's been a real challenge is looking at offices as an investment asset perhaps the last few years. And one question that I keep asking people is to what extent do you see asset classes becoming much more blended into? Thinking about not office and residential, but much more about a district. And I know you did a vertical city development in Rotterdam, uh, so I'd love your thoughts on that.

Speaker B: We made a building a couple years ago and the city uh, sort of forced us to make a building that was both an office building and uh, residential. And we tried everything we could to make that uh, uh, uh, in a separation that there would be an office part and a living part and then a little bit of retail on the ground floor and the city just didn't want to have it. And so in the end we let go of that thought that we had to separate it and we threw it all together and that became the Valley building in Amsterdam, which is by far the most beautiful building uh, we've ever done. And it's the number one social, uh, media spots in the Netherlands. Um, and what's so special about it is that we were nervous, uh, the whole process whether we could actually sell the building. Because when we started to engage with investors that were buying offices, they would say, oh, there's too much residential in it. And of course the residential investors said there uh, are too many offices in it. In the end we sold it to a family office that just loved the building and said ah, we want to have it today. However, this is, this is like five years ago. Today we starting to see that also on the investor side, people are not so strict anymore and they're just looking at what is now going to provide us, let's say something close to fixed income. You know, the best forecaster to the income is going to stay there over many years. And that might be buildings that actually have many functions coming together in one object.

Speaker A: So it's really embracing lifestyle, that blending of work and life and play.

Speaker B: Yeah, we are now dealing with a whole new generation of workers, let's call them the Gen Z, um, who absolutely also like to come to the office. But there's a big if, um, and that is that the office then have to suit their way of working.

Speaker A: And I think that's exactly the stress that we're seeing in the office market. As you rightly said, uh, people want to come to the office to actually collaborate, to have unique experiences that they cannot have at home. And 90% of office space doesn't actually support those things. It's still designed for individual work. And very much, you know, old school thinking of command and control environments will not cut it in the future.

Speaker B: The trick is going to be to be such a close partner to those users of the buildings that you can also guide them and coach them into the direction that is efficient, while at the same time completely doing everything that we want to get done in a building.

Speaker A: So that inefficiency that you're describing potentially makes me think of the whole embodied carbon issue. And of course a lot of the buildings.

Speaker B: It's great to talk about my biggest problem. Thank you for that.

Speaker A: Are already in existence. And I love your headquarters building, uh, in Amsterdam, because I think it's such a great example of how you've taken a very unusual building and converted it into not just a sustainable story, but a complete circular economy story. So tell me a bit more about what made you do that and how important is it for us to address that.

Speaker B: Let me start by saying that, uh, I am managing our company with two KPIs when it comes to sustainability. And the one KPI is how much carbon is there in the energy consumption of the building. And the other one is how much carbon is there in the making of the building. And so the material you use, um, and that's the whole embodied carbon discussion. And right away from the moment that we started to do that, um, we basically saw that, that existing buildings are going to be so much better than the new buildings that there were in the past. We did 80% new and 20% redevelopment. We completely switching that around at the moment and go to 80% redevelopment and 20% new. Some people are saying you should not build new at all anymore. I don't agree with David because we don't want to make our cities museums. And there are some new architecture is also needed. And what is extra interesting is that if you look at the price of offices today, these older offices that are empty have become so cheap that in my career, and I've been around for about 30 years now, I have never seen an opportunity so big as this one. At the same time, if you um, for example would take out parts of the floors and you would make vertical gardens, uh, in there, if you would play in the space that is done so cheap and you make areas where people can really play, where people can really reflect, uh, or meditate or do other things and other floors you completely bring back to high quality office buildings. Um, then there's an amazing upside into doing that. What is the difficulty? The difficulty is that we are working in a set of rules and regulations that are complex and ah, probably for all the right reasons because we don't want fires, we don't want crazy stuff happening in our cities. Um, but the flexibility that is needed to create spaces, new spaces, different spaces are such that I sometimes talk to municipalities and to politicians and I say, hey, you want to have a diverse city, you want to have a city where new things are possible, but you have closed down any opportunity to be creative in those buildings. And so you have to step back and allow us to do a little bit more. And I hope that that is going to change going forward.

Speaker A: Part of the big discussion at the moment is how do you create more inclusive communities? How do you engage the community in a much bigger way? Now I know you're really focusing on how you do that with your Liverpool development in London. Uh, how important is that social value, that greater inclusivity of the wider urban public realm and community?

Speaker B: It's more important than ever. And it's also, I find it still difficult how to do it. Sometimes tenants are a little bit afraid about it. They're uh, like hey, what is coming into our building? How can we trust that those things are done in the correct way? But it's insane that our buildings are only being used a certain amount of time. That counts for schools, for sport fields, for uh, office buildings that are, you know, being used less instead of more, uh, at uh, the moment. And so there's opportunities there.

Speaker A: You have a 25 to 30 year AH plus record of developing sustainable buildings that actually Focus on enabling uh, positive impact to the environment, helping society, helping people thrive. What is the one thing that we should be doing differently as an industry and where do you see the future of that focused on?

Speaker B: I believe that it is more than ever important to focus uh, sustainability on those things that are uh, without any question, vital for humanity. And problem number one we need to solve is that a lot of the problem of global warming is coming from our built environment and it's relatively easy and cheap to do so if you have the right knowledge and you know how to do it. What is the shift that I see that is that in the past it was enough to have a BRI outstanding building. And what is needed going forward is that the actual carbon needed to heat and cool your building, use electricity in your building, is measured and is as low as possible. We should have not more than 50 kilowatt hours per square meter per year. And instead of um, tenants saying, oh, I've got a building that has a BREEAM label or a lead label or whatever label, the question that people should ask themselves is what is my energy consumption per square feet per square meter? It's one number and that is going to be a very important number. Now the other part that is very important for us is that building buildings is taking up a lot of cement and steel and therefore a lot of carbon goes into those ah, industries. It could be that we make steel a little bit more expensive on the one side and then use the money that comes out of that to subsidize the green steel. And you need a partnership. And we as an industry have to organize ourselves much better. We uh, are way too fragmented. There's a couple of great organizations like uh, the ULI for example and there's others, the Green Building Councils that can play that role. But if I talk to the top people in Brussels, they don't talk to the real estate industry at all. And um, it's needed because they can may build the instruments that can actually uh, work. I think the technology is there. I don't think that the carrot and stick approaches are there. So the whole csrd, I expect actually in the next months that they're going to say that they're only uh, maybe they're going to wind it down or they're going to make it more simple. M It's a nightmare because a company like mine, we're just done with the whole process and we now know how to report in the CSID standards. We spent you know, months on it. Our whole innovation team was working on it because we needed the hands to do it. Uh, that was a disaster. So, long story short, I really believe that sustainability will change. I love to make profit with sustainability and that's what we do. And um, we make buildings that are more efficient. It is for us a no brainer to make a building that has less steel, less concrete because it's cheaper. It is a no brainer to have a building where the energy costs are almost zero. We go to a point where we tell our tenants, you can come and rent with us and you don't have to pay anything for your energy costs anymore. It's included in the rent. You get it for free. Because we are so efficient. That's a no brainer. And um, we are going to communicate about that, we are going to screen this into the markets, that this is the way forward. But it's no brainer that a building can be built with less energy consumption. And that is something that I want to fight for.

Speaker A: So definitely good for the planet, good for people and good for business.

Speaker B: And good for business.

Speaker A: And presumably that's also going to transform the way you operate the building day to day.

Speaker B: Definitely. And um, the simple versions of that we see already. So the self learning capabilities of the building, um, is now done by AI and I think that helps to make things better. Uh, it's not perfect yet. Um, but the computing power of AI is going so much faster in the moment that it's a matter of years. And then most of our buildings will be run by AI and will be

Speaker A: designed by AI, increasing efficiency and improving the experience.

Speaker B: Sustainability.

Speaker A: Exactly.

Speaker B: It's all there.

Speaker A: A very exciting future for us.

Speaker B: Yes.

Speaker A: Kuhn, thank you so much for joining us today and I look forward to seeing what Edge does next. Thank you.

Speaker B: Thank you.