New research in the US on the financial benefits of energy efficient `green` buildings

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Courtesy of WSP | Parsons Brinckerhoff

Buildings in the US with 'green' ratings, such as Energy Star and LEED, can significantly impact market rents and value of commercial space, according to new research commissioned by RICS (Royal Institution of Chartered Surveyors).

The report 'Doing Well by Doing Good?' provides the first credible evidence in the US supporting the economic value of the certification of 'green' buildings in the commercial sector. The research reveals that a commercial building with an environmental certification will rent for about 3% more per square foot than a comparable unrated building nearby. When measured as effective rent (the true rent of a property, considering rental concessions, spread over the life of the lease), the premium is higher still, above 6%.

This study also shows that 'green' buildings sell for up to 16% more than non‐certified buildings. The research implies that the incremental value of a 'green' rated building is approximately $5.7 million more than an otherwise identical building of the same size, location and function.

THE IMPORTANCE OF ENERGY EFFICIENCY
The study reveals that a 10% decrease in energy consumption leads to an increase in effective rent of about 20 basis points and an increase in value of about 2%, which is above the rent and value premium for the building label.

The analysis also shows that a $1 saving in energy costs from increased thermal efficiency yields a return of $18 in the increased valuation of an Energy‐Star certified building.

The type of green label associated with the building ‐ LEED or Energy Star ‐ also matters. The study indicates that tenants and investors are willing to pay more for an energy‐efficient building, but not for a building
advertised as 'sustainable' in a broader sense.

OUR VIEW
'We are seeing our corporate and real estate clients leverage the benefits of environmental efficiency. They are reducing holding costs by choosing high performance buildings which are attractive to occupiers due to business performance and lower running costs. This can lead to higher rentals and lower vacancy rates. As a result, our clients are reducing the risk premium that investors or lenders require.'

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