Green Buildings Financially Crush and Outperform Non-Green Buildings!!


Flat out, this news is big!  CoStar just released details of their study of LEED and Energy Star buildings, and I have to say, I was surprised by the numbers.  They analyzed roughly 1,300 LEED and Energy Star buildings representing 351 million square feet of commercial buildings.  The green buildings were compared with non-green properties of similar size, location, class, tenancy, and year built characteristics to extrapolate the economic case for green buildings.  The result:

Compared to non-LEED buildings:

  • LEED buildings sell for $171 more psf!!
  • LEED buildings command rent premiums of $11.24 psf!!
  • LEED buildings have 3.8% higher occupancy rates!!

Compared to non-Energy Star buildings:

  • Energy Star buildings sell for $61 more psf.
  • Energy Star buildings command rent premiums of $2.38 psf.
  • Energy Star buildings have 3.6% higher occupancy rates.

You may not be familiar with this shorthand, but "psf" is per square foot, so we’re talking about a TON of money.  This is going to be huge.  Honestly.  We’re at the point now, with data such as this, that the first costs debate is pretty much ridiculous. 

Property Owners:  Sink or Swim?
Experts like Charles Lockwood and others have been saying for a few years that non-LEED / non-green buildings are going to be obsolete.  Specifically, back in December 2006, in Barron’s [pdf], Lockwood said, "the marketplace shift to green is gathering force.  Massive obsolescence is looming.  Profits are there for the taking.  It’s time to act."  I even mentioned this stuff in 06 (beware of the fledgling article, I was just beginning!). 

So the question is:  Did you get started in green back in 05, 06, or 07, so you could benefit from the demand for green buildings now?

Demand Exceeds Supply Right Now
The study noted that one of the reasons for the good financial returns on green projects (both LEED and Energy Star) is the supply constraints.  While the number of green buildings continue to grow, they represent a small fraction of the total real estate market and supply has not kept up with demand. 

Additionally, LEED is starting to become tied to and associated with Class A properties.  You basically can’t build a Class A property unless it’s LEED.  As a result, buildings that aren’t LEED start to fall down to Class B or so, and their value is diminished.  That’s not good for property owners, so get ready to see an increase in LEED-EB registrations and certifications.  And get ready for LEED to become the de facto standard for new developments and deals.

Read more from CoStar Group.

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  • Preston

    I want to point readers to Leigh’s thoughts in relation to this news: LEED is Just Not Enough.

  • Kyle Cherrick

    Thanks Preston, this is huge news within the community that believes that green building far outperform non-green buildings, but hadn’t done the research to prove it. This is excellent. I will surely use this to clarify for some people how big of a green geek I am.

  • Preston

    Absolutely my pleasure, Kyle. I’m always looking for solid data relating to green building first costs, operating costs, and terminal values. You can green geek all day long with info like this.

  • Baldomero Fernandez

    Thanks Preston, Great to see this trend in commercial real estate; lets hope it translates similarly to residential. It would be a boon for homeowners and builders that are trying go green/LEED. Unfortunately the banks don’t recognize the value yet lets hope the market does.

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