CLAIRE SOLON puts forward the business case for sustainable building practices.

Building GreenSustainability has been a buzz word for years and the subject of numerous definitions from differing sources. It is generally accepted that a sustainable building will have less impact on the environment through its construction and operation than a traditional property, and could be called a ‘green building’. This is usually through a mixture of passive (such as orientation of building facades) and active (such as photovoltaic or geothermal) design solutions.
More occupiers and corporate entities are considering the sustainability aspects of a building when looking at potential space to occupy. In the domestic market, homeowners are also growing in familiarity with the concepts through Building Energy Rating (BER) certs. The market itself is growing; ‘green building’ is now a half-trillion dollar industry in the United States, and is worth more than a trillion dollars worldwide. Transactional market evidence in Ireland would suggest that while awareness is growing in the commercial sector, there is a distinct lack of price sensitivity to reflect greener buildings.

Why build green?
At its most basic concept, sustainability is the capacity to endure – and for something to last it has to be financially viable. While most people would appreciate the concept of being ‘green’ and reducing the impact of buildings on the environment, in tough economic times hard decisions have to be made. If there is a lack of evidence to suggest that prices achieved for green buildings are higher than conventional buildings, then the question has to be asked – why incur the additional cost?
On this point, the recent World Green Building Council study makes interesting reading. The findings are based on studies undertaken between 2000 and 2012 on a wide variety of building types from countries including the US, UK, Australia, Singapore and Israel.
The research shows that building green does not necessarily cost more, especially when the strategies are integrated into the development process from project inception. Many industry professionals believe that building green increases design and construction cost by approximately 10-20% (with estimates as high as 29%) compared to the cost of conventional buildings.1 However, while there can be additional costs, the actual cost premium for building green is typically not as high as is perceived, and ranges from -0.4% to +12.5%. The sooner the measures are incorporated, the less impact on the bottom line, as passive measures can be accommodated at little or no extra cost. Knowledgeable design teams also assist in keeping cost premiums down. As a general rule, the higher the level of accreditation targeted (LEED/BREEAM, etc.), the higher the cost in its achievement.

Long-term benefits
It is worth noting that these upfront costs are usually offset by a decrease in life cycle costs through energy-efficient building systems. The delivery of cost-effective buildings is about taking the long-term view and translating it into short-term savings. Perhaps unsurprisingly, the results show that the energy-efficient nature of green buildings has resulted in lower operational costs, through reduced energy and water use, and lower long-term operations and maintenance costs. Estimates for the reduction in a green building’s energy use compared to a conventional code-compliant building range from 25-50%. With more knowledgeable occupiers and continuing pressure on the total occupancy costs of buildings, including service charges (rather than just headline rents), these issues are getting more attention. From an occupier perspective, the research shows that the attributes of these buildings and their internal environments can improve worker output and occupant health, resulting in financial benefits for businesses through reduced absenteeism levels and higher productivity. Over 85% of total workplace costs are spent on salaries and benefits, compared to less than 10% on rent and less than 1% on energy.2 By making small improvements to productivity and wellbeing, businesses can experience larger financial benefit than they would from more efficient resource use in building operations. Despite this being proven through a number of studies, internal environmental quality has not been a priority to date in building design – perhaps due to the fact that most office developments are speculative rather than owner-occupied. Also, although the principle is acknowledged, it is difficult to calculate the actual financial payback.

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Figure 1: Stakeholder perceptions that affect the value of green buildings.

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Figure 2: Reported rental rate increases of certified green buildings as compared to conventional code-compliant unrated office buildings, various sources.

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Figure 3: Energy Savings for LEED-certified buildings.
(Source: World Green Building Council.)

 

The market
As investors and occupants become more knowledgeable about and concerned with the environmental and social impacts of the built environment, buildings with better sustainability credentials enjoy increased marketability. Studies based on international property markets indicate that green buildings are more able to attract tenants and achieve higher rental levels and sale prices. When the sales prices of certified green buildings were compared to non-certified buildings in the same sub-market, price premiums were found to be in the range of 0-30%. In terms of rental levels, evidence reveals that sustainably certified buildings typically command rental premiums in the range of 0-17%. The research suggests that the higher the certification, the higher the premium achieved. An average 3% increase in rent for each increase in certification level has been suggested.3 Occupancy rates are also higher than their conventional building counterparts, ranging from 0-23%. Indeed, in markets where sustainable buildings have become the norm, there are indications of emerging ‘brown discounts’, where non-green buildings may achieve lower rental and sale values.
What is clear is that there is increasing evidence that in many markets across the world, the advantages of occupying a green building are being acknowledged in terms of their cost savings, operational benefits and environmental improvements. More importantly (speaking from the ‘developer’ side of the house), occupiers are starting to pay a premium for these advantages – which in turn will drive supply. The market is a fickle creature and it is only when measures make financial sense that they will truly become the market norm. As the property market recovers, and a lack of supply of high quality modern office space emerges in certain areas, the financial benefits of building green should see the emergence of this trend in Ireland.

References

  1. Gomez, S. ‘Is the Client Willing to Pay to Occupy a Greener Building?’ Improving Energy Efficiency in Commercial Buildings Conference, 2008.
  2. Persram, S., Lucuik, M., Larsson, N. ‘Marketing Green Buildings to Tenants of Leased Properties’. Canada Green Building Council, 2007.
  3. Eichholtz, P., Kok, N., Quigley, J.M. Sustainability and the dynamics of green building: New evidence of the financial performance of green office buildings in the USA. Research Report. RICS, 2013.

Report available on www.igbc.ie.

Layout 1Claire Solon BSc FSCSI FRICS
Claire is Head of Estates Management at ESB