The Big Green Pay Off

Is investment in green sustainable buildings still paying off?

Absolutely, according to a study of properties managed by CBRE Group Inc. ("CBRE").

Sustainable buildings generate stronger investment returns than traditional managed properties, according to the ongoing study of a national office portfolio managed by CBRE.  The study found that there is a higher value and an increased demand for green, and in particular for LEED® certified buildings, which is demonstrated by increased occupancy and rental rates in comparison with the general market.

The study, which surveys approximately 150 CBRE-managed office buildings and more than 2,500 building occupants, shows how green building performance continues to trend higher than the general market, establishing a clear economic case for the value of green in existing buildings, with mid-sized markets leading the trend.  In particular, aggregated data on LEED certified buildings over three years shows an average 3.1% improvement in both rental rates and building occupancy in comparison to the general market. The 2011 phase reinforces earlier findings that demonstrate sub metering of utilities for tenant space reduces energy costs by 21% on average.

This report should not surprise anyone.  It is the building equivalent of purchasing an electric or hybrid automobile for all the same reasons, it saves energy, costs less to operate and is better for the environment.  Why not build, buy, or invest in one. 

The CBRE report also noted that economic uncertainty can cause downward pressure on an any organization's continuing commitment to sustainability.  Still, survey respondents consider green features important when selecting office space, with a healthy indoor environment as the leading factor. This finding supports other results of the study in which 19% of tenant respondents reported increased productivity and 94% of tenant managers registered higher employee satisfaction in green office space.  The study also shows a growing general awareness of green.

CBRE was ranked #30 among Newsweek's greenest companies in America in 2010, and #1 among the financial services sector.

Recall also that earlier in 2011 the Green Building Opportunity Index came out with the first office market assessment tool to provide weighted comparisons of top U.S. office markets on the basis of both real estate fundamentals and green development considerations.  The Index focuses on the primary factors that influence successful development, retrofitting, leasing and sales of investment grade green office buildings in the largest U.S. Central Business Districts.  It compares a market's relative position to its peers in six categories: Office Market Conditions, Investment Outlook, Green Adoption & Implementation, Local Mandates & Incentives, State Energy Initiatives and Green Culture.  For 2011, the Index has been enhanced by adding five new markets and refining the methodology and data inputs - yielding a more comprehensive view into market influences that determine where sustainable development brings competitive advantages.

As a tool to examine the overall climate for green building, the Index assists a broad spectrum of professionals to determine where the favorable conditions exist.  Investment/pension fund managers and developers can use this data to consider where to put their money and why.  City policy makers, utility staff and planners can examine the data to understand what new policies and incentives might be useful to accelerate green building activity.  Building owners, architects and green building consultants can determine where green development brings competitive advantages, or where it is simply an emerging standard.

According to Cushman & Wakefield the 2011 Green Building Opportunity Index's top 10 markets overall shows that five cities on the West Coast are on that prestigious list:  (1. San Francisco; 5. Los Angeles; 8. Portland; 9. Seattle; and 10. Oakland).  One very recent entry into the green sustainable office market in Portland is making news.   

Portland’s city council approved plans for the Oregon Sustainability Center last week (see image above). The city and its project partners hope the Center will be the world’s first and tallest mixed-use office building to achieve Living Building status.  The decision to support the Center represents the city’s commitment to build (and pay for) a sustainable building.  With a construction budget of $62 million, the 150,000 square foot tower will cost 15 to 20 percent more than comparable buildings in Portland’s downtown area.  The city’s fiscal pledge to green building recognizes a return on investment bigger than rental income.

The project is jointly supported by the Oregon University system, the Portland Development Commission, the City of Portland Bureau of Planning and Sustainability, and an assortment of for-profit and non-profit groups with interests in sustainability and social equity.  In June of 2011, the Oregon state legislature held their approval for funds on the conditions that private sector tenants were found and signed to leases, and that the city of Portland foot the costs of architecture and engineering services.  Ultimately the Center will be owned by the city and the Oregon University system.

Sustainable buildings at the commercial and institutional scale are relatively expensive to build. Innovations, especially in the early stages, often come at a premium.  Some of the Center’s premium technologies include triple-glazed glass, solar panels, a high capacity underground water tank, and a geothermal well system that will provide heating and cooling.  The energy saving and energy generating materials make up a heavy, but worthwhile expense. 

Targeted for a 2012 groundbreaking, the Oregon Sustainability Center is an example of the importance of total buy-in for sustainable building.  Mayor Sam Adams understands the value of the experience: “We’re never going to be the biggest city, but I want us to be the scrappiest, most successful international city.  To do that you’ve got to invest in innovation.”

So not only is the market for green sustainable buildings currently viable, the City of Portland is betting $62 million that the trend will continue into 2013.