Commercial Real Estate Goes Green!
Green buildings have reached a tipping point in the commercial real estate sector. Once a rarity, a greener vision of real estate is being embraced by owners of warehouses, office buildings, and retail properties as green buildings are becoming more attractive to an increasing number of corporate, public and individual buyers. In fact, green features are quickly becoming a part of tenants’ and buyers’ decisions when thinking about leasing or purchasing a space, making—or breaking—the deal.
A green building can be a competitive differentiator, especially one with LEED certification due to the advantages of having independent third-party verification. That “stamp of approval” sets a building apart from others and makes it more attractive. Educated buyers and tenants are highly interested in buildings that meet stringent requirements because they are as energy efficient, clean, and sustainable as they can be.
However, third party verification isn’t just about simply meeting special code requirements—it goes above and beyond that. Green building certification can actually help mitigate risk in a number of ways. First, third party certification can help provide some protection against lawsuits since green buildings are safer and healthier to inhabit. Green buildings also tend to be easier to rent and sell and they don’t stay vacant for very long. In fact, occupancy rates for green buildings increase 6.4% for new construction and 2.5% for existing building projects seeking green status, according to a survey done by McGraw Hill Construction called Green Outlook 2011: Green Trends Driving Growth.
Green buildings are more attractive to tenants and buyers because they understand that energy-efficient/low environmental impact buildings will lower their costs, enhance their image, and help recruit and retain employees. They also know that occupant satisfaction in green buildings is typically higher than in other buildings, and green features like improved airflow and abundant natural light can increase worker satisfaction, morale, and productivity. Not only that, but businesses housed in green buildings can use that fact to help promote their dedication to sustainability—it’s like built-in marketing! To get these features they’re willing to pay a little more for rent, too. The McGraw Hill study reveals that rent increases by 6.1% for new construction, and by 1% for existing building projects.
As mentioned earlier, buildings with LEED certification are incredibly cost effective in a variety of ways. The McGraw Hill survey also revealed that operating costs decrease 13.6% for new construction and 8.5% for existing buildings. Consequently, lower operating costs increase the value of buildings significantly– 10.9% for new construction, and 6.8% for existing building projects. Nobody wants to send extra money to the power company!
The cost per square foot to construct buildings for LEED certification is comparable to the costs for buildings that aren’t seeking LEED certificates. According to the survey an upfront investment of 2% in green building design, on average, results in life cycle savings of 20% of the total construction costs—more than ten times the initial investment. Building sale prices for energy efficient buildings are as much as 10% higher per square foot than buildings without LEED certification.
The benefits extend beyond new construction, too: as the survey reveals, the ROI for buildings that have undergone retrofit/renovation green projects is 19.2% compared to an average of 9.9% for new construction. These are encouraging figures, and as green building continues to go mainstream, more options for the proper building materials emerge, further reducing up-front costs (and subsequently increasing ROI).
Owners of existing commercial buildings can also aspire to creating a greener structure by having their buildings commissioned to make sure all its major systems are fine tuned and operating at maximum efficiency. Since energy systems are the biggest power wasters, commissioning can make an older building much more sustainable.
As the fluctuations in crude oil prices show, lots of attention is focused on energy consumption and economy. The literal foundation of a business is the structure that houses it, and a little diligence in planning, building, and maintaining that infrastructure promises years of benefits with very respectable returns.
At Braver we are dedicated to providing the most current and accurate information to our clients. If you would like to discuss this article or any other issues related to real estate, please feel free to contact us at (617) 969-3300.
Posted on: July 12, 2011
