Buildings account for about 73% of total U.S. electricity consumption, according to the U.S. Green Building Council (USGBC). Therefore, building owners and managers can help improve our energy efficiency and independence. However, the real estate industry has been slower than others in embracing and implementing energy efficiency, even though it stands to benefit greatly from energy efficiency gains.
The Many, Great Financial Benefits of Green Building
A recent report from CoreNet Global, “The Future of Corporate Real Estate”, discusses reasons why building owners will benefit from implementing such strategies:
• reduced utility costs,
• higher selling price for “green” buildings over non-green units,
• greater demand for such buildings, and thus, greater rental income.
Reduced Utility Costs
It goes without saying that if you use less electricity or gas or oil to heat a building, you will decrease your utility costs. Energy rates are among the fastest growing expenses of a building owner (greater than that of labor rates), and a potential drag to profitability. Using less energy gives you control to reduce this cost (you have no control over energy rates).
But utility cost benefits go beyond just this. More utilities – particularly in large cities – are charging not only for electricity usage, but also for peak demand. Whatever your electricity need for your building in (in most cases) one 15-minute period per month will lead to a huge additional charge, even if usage and demand are low for the rest of the month. Thus, ways to reduce peak usage can be very effective in reducing utility costs.
There is also a special value to investing in strategies to reduce energy usage and peak demand. Let’s assume you install technologies that reduce your utility costs by $50,000 per year. The other way to make money is to increase revenue. But it may be difficult to raise rents by $50,000 per year because in most markets rentals are quite competitive. In most cases, it is easier to save money with energy upgrades than to simply raise rents. And the nice thing about energy upgrades is that the savings due to installation of technologies (LED lights, upgraded HVAC equipment and motors, etc.) will continue year after year (one does not yank out insulation the year after it is installed!). So the $50,000 per year savings will occur year after year and in fact, will rise slightly as energy rates only rise. This year’s $50,000 will likely become $52,000 the next year and $55,000 the year after, etc. based on the one-time effort of investing in smart stratagies.
Green Buildings Reduce Operating Costs and Draw Higher Rents
As more properties are becoming certified as “green” over the last decade, comparative studies are beginning to be completed about the overall financial benefits of these upgrades, including their relative operating costs and demand for such properties, which has a large influence on rents. Of course, many factors influence what a building owner can collect in rent. Studies have recently been conducted that compare buildings with similarities in many areas except for their “greenness” to see if there is a difference, which can likely be attributed to energy and water efficiency and related factors.
A recent study indicated that in Los Angeles, owners collected rents that are 35% higher per sq. ft. for LEED-certified space compared to those in non-LEED space in buildings with similar vacancy rates. In addition, this same study compared operating costs of green-certified vs. non-green buildings, as well. Operating costs were shown to be 13.6% lower for new green construction compared to non-green buildings and 8.5% lower for existing buildings upgraded to a green standard compared to a building not upgraded of similar age.
There have been a number of studies showing that certified green buildings also increase worker productivity and satisfaction and reduced sick time, the crux of any business as profits stem from productive workers. A business that understands that a particular building has conditions that will lead to greater comfort and productivity will result in seeking to rent that property and to renew its lease.
In addition, a satisfied work force has concrete benefits for a business in terms of lower turnover, reduced business disruptions, lower risk, and less time training new workers. A relatively new certification program from the International Well Building Institute, called WELL standards, focuses on building conditions that will result in healthier, more satisfied, more productive workers. A number of studies from research institutions that specialize in productivity are showing – now that there are a growing number of upgraded and LEED-certified buildings – that significant improved worker productivity does occur, based on measurement of tests on tasks and memory. As this research is being publicized and accepted in the business world, companies are looking to relocate their business to LEED- or WELL-certified buildings to improve productivity even at the cost of greater demand and rents.
Assets’ Higher Resale Value
As more properties are becoming certified as a “green” building over the last decade, studies are beginning to be completed about the overall financial benefits of these buildings, including their value, based on sales.
A 2015 USGBC publication “The Business Case for Green Building” provides several facts concerning the resale value of and income from green buildings. In Los Angeles, in 2014, ENERGY STAR or LEED-certified buildings had an average selling price of $329/sq.ft., while that for a non-certified building was $244/sq.ft., 35% higher.
According to World Green Building Trends (http://naturalleader.com/wp-content/uploads/2016/04/McGrawHillGBStudy.pdf), building values increased by 10.9% for green new construction compared to non-green (6.8% increase for existing building upgrades) and asset valuation rose 5% for new green building projects vs. non-green (4% for green building retrofits).
CCES has the experts to help you assess how your buildings can be more “green”, whether it be certified in LEED or WELL programs or just more energy efficient. We can help you assess, strategize, design, implement, and test new systems to maximize the many financial benefits, like those listed here, with the least disruptions of your operations. Contact us today at 914-584-6720 or at karell@CCESworld.com.