Green Building Means Business Part 2: Getting to the Bottom Line
In part one of the Green Building Means Business article series we explained how green building should be looked at as a complete process from siting all the way through to demolition and how we get to the bottom line. At every phase energy efficiency and environmental interests should be at the forefront of consideration or else there’s no point in green building. You sure as heck don’t want to end up with an expensive fraudulent building.
Then we highlighted how there is a debate between LEED certified and LEED equivalencies and what will provide more value. It’s still up in the air but at least you’re now aware of other options. There’s also the issue of appraisal and whether or not modern appraisal techniques are up-to-speed on how to valuate some of the less obvious components or green buildings that might mean a lot to a buyer.
Let’s look at how areas of green buildings actually add value and can increase your bottom line.
Bottom Line Value
In North America for years people built home and commercial buildings out of a mold that was quick and economical but were not built to last. So now, as with most things in life, we’re paying to upgrade, renovate, retrofit, demolish, and rebuild.
I’d like to take a quick minute to point out how European buildings built hundreds of years ago are still standing. Just some food for thought. Knowing what we know now surely we can figure out a way to make good quality, sustainable buildings that have IRR and ROI.
Green buildings add value in many areas which all lead to higher valuation when you want to lease or sell.
I may not be an expert of modern green building appraisal techniques but I do know that consumer demand is increasing and will continue to increase when it comes to sustainable products and services. Leaders are working on shifting mentalities and behaviors from compliance to commitment. The way to do that is through incentivization (yes, Spell Check, it’s a word). People now have greater incentive to live in or buy green buildings because they’re “green”. This is a very real consumer market and there’s no better time to reach it than now before it becomes mainstream. That’s a lesson in supply and demand.
The good thing about LEED is that when you build to its standards you’ve been given a gift from the marketing fairy. Your advertisement can go something like this:
“Live here. It’s LEED. Enough said.”
Okay that’s an exaggeration but I’m trying to drive the point home. Once you’ve drank the “green Kool-Aid” you just get it. Marketability is a huge factor in the value of your end product. Don’t overlook it.
Asset value. If that made you feel all warm and fuzzy then pay attention. By building green you are attracting a certain demographic. Yes, this demographic has more money (potentially) but more importantly this demographic places value on built-in energy-reduction systems and greater air quality and circulation. This goes hand-in-hand with marketability. If your building (the asset) is filling this need then it has a value. It’s important to have a good understanding of what green components are deemed more valuable than others and in which markets so that you include those in construction.
Tenants And Occupants
When we talk about the demographic of people renting and occupying LEED buildings we can address return on investment. According to data from the Institute for Building Efficiency, LEED certified or ENERGY STAR buildings yield higher rental rates between 2 and 17 percent over conventional buildings. Additionally, occupancy rates were higher by anywhere between 0.9 and 18 percent, and resale value grew by anywhere between 5.8 to 35 percent.
Operating Cost Savings
We were so focused on how much ROI you will get once you sell the building in 20 years that we forgot to discuss all the great operating and maintenance costs you’re going to save on before you sell! Wow. Form the same study by the Institute for Building Efficiency, LEED or ENERGY STAR buildings reduced operating costs by 30 percent.
It is also interesting to note that the productivity of the occupants increased by 4.8 percent. This is an important consideration for companies looking to construct new office buildings of their own and not solely as real estate investments.
Green buildings have many other added benefits included a longer life cycle, better risk mitigation, health and safety, and also provide greater prestige and sense of community investment. All of these factors add value onto the product as well.
Feature Image: Infrax West building in Torhout, Belgium. Image via Inhabitat.