Green Commercial Real Estate
| Read comments | Add comment / Rate this Article | Article by: Mark Casey |
April 22 marks the 40th anniversary of Earth Day. As someone who was around for the first Earth Day in 1970, I am amazed by how far we have come…..and how far we still have to go. More than any other sector of the economy, commercial real estate represents the greatest opportunity to improve our society’s energy consumption, to reduce our national carbon footprint and to grow our economy. Buildings in the U.S. account for:
- 36% of Total Energy Use
- 65% of Electricity Consumption
- 30% of Greenhouse Gas Emission
- 30% of Raw Material Use
While the potential is huge, for the green revolution to fully take hold in the commercial building sector, sustainable buildings need to make financial sense to landlords and tenants. While environmentalists have been advocating sustainable development for years, it has only been in the last few years that commercial real estate owners, managers, tenants and brokers have begun to recognize the benefits of sustainable building.
A 2009 study by the CoStar Group, a national real estate information provider, addresses the economic performance of green buildings. CoStars research found that sustainable buildings outperform non-green buildings in key measures such as occupancy and rental rates. This study indicates greater demand by property investors and tenants for buildings that have LEED certification.
The study looked at 1,300 LEED and Energy Star buildings representing about 351 million square feet in CoStar’s commercial property database of roughly 44 billion square feet, and assessed those buildings against non-green properties with similar size, location, class, tenancy and year-built characteristics to generate the results.
The CoStar study found that LEED buildings command rent premiums of $11.33 per square foot over their non-LEED peers and have 4.1 percent higher occupancy. Rental rates in Energy Star buildings represent a $2.40 per square foot premium over comparable non-Energy Star buildings and have 3.6 percent higher occupancy. These findings strengthen the case for green building as sound financial investments.
One explanation for the “green rent-premium” tenants appear willing to pay is the constricted supply of green buildings. Green buildings account for less than 1% of the total U.S. building stock. The CoStar study indicates that while the number of LEED-certified and Energy Star buildings continues to grow, the supply has not kept pace with demand. There is currently more demand for green building than there is product to fill the demand.
Savvy commercial brokers, property managers, landlords and developers are paying close attention to green trends, not just because there buildings are good for the planet and the economy, but because sustainable buildings out-perform the non-green competition.
This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.
