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Home > By DEPARTMENTS > Finance and Financial Management for Green Business > Investment and Funding for Green and Sustainable Programs and Business Development

Survey: Green Focus for Investors, Managers and Development

Green building survey indicates long-term value and impact of green commercial buildings

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According to a Brookings Institute study, by 2030, 50% of U.S. building stock will have been built after the year 2000. New building stock will represent 127 billion additional square feet, with the majority of growth in the West and South.

A 2007 joint survey by Real Estate Media, BOMA and the USGBC--underscores the progress the architectural and building industries have made. And how far we still have to go.

Commercial Real Estate Sector Allocate funds to Green Initiatives and Sustainability

The national survey of the commercial real estate sector reveals that nearly two-thirds of respondents have allocated funds to green initiatives, while the majority said that their sustainability investment will increase in 2008.

Findings of the study by ALMs Real Estate Media Division, the Building Owners and Managers Association International and the US Green Building Council (USGBC) were released at Greenbuild 2007, the annual conference and expo sponsored by the USGBC.

Financial Benefits of Green Buildings

Other findings include:
  • Green buildings boast occupancy rates between 75 percent and 100 percent for a majority of those responding. For 21 percent of respondents, the increase is due directly to green initiatives.
  • 61 percent of responding executives claimed a return on their green investment.
  • Respondents were almost evenly split on whether local municipalities should mandate energy efficiency in buildings. Many felt that any mandate should be offset by incentives or apply only to new construction.
  • Maintaining a green building is not typically more expensive than a comparable non-green building asset.
The survey focused on the application of green methodologies and technologies in existing commercial buildings, and on the financial and marketing benefits of these efforts. It was distributed to REM's national database of ownership, investment and operational entities, as well as to BOMA's national membership.

To obtain a copy of the complete survey and results, go to GlobeSt.com.

Industry Slow to Adopt Green Building Practices

Despite the growing praise for sustainable design, property players have been slow to embrace green building practices. This is the prevailing sentiment of CB Richard Ellis’ "Green Downtown Office Markets: A Future Reality," a report outlining the progress of the green building movement.

The report, issued during the Los Angeles-based firm’s recent world conference, looks at the obstacles preventing a broad-based acceptance of sustainable design in office construction. The initial outlay compared to long-term benefits was noted as one of the leading hurdles. A lack of data on development, construction costs and time needed to recoup costs–making education the most crucial tool for the movement—was also cited as a problem.

However, the overall sense of hesitation is not preventing some progress. With that interest comes the need for education, which partly prompted the creation of the report, Wilson notes. “Given that we manage 1.7 billion sf globally, we have a real opportunity to help our clients understand how they can make changes in operations in their own facilities to reduce greenhouse gas emissions and be more energy efficient.

Research on green building presently constitutes an estimated 0.2% of all federally funded research, an average of $193 million per year. This is roughly equivalent to only 0.02% of the estimated $1 trillion value of annual U.S. building construction, despite the fact that the building construction industry represents 9% of the U.S. GDP. At the same time, the construction industry reinvests only 0.6% of sales back into research—significantly less than the average for other U.S. industries and private sector construction research investments in other countries.

The U.S. Green Building Council (USGBC) suggests that without significant increases and improvements in green building practices, the negative impact of the built environment on human and environmental health is likely to increase dramatically in future decades. Building operation accounts for 38% of U.S. carbon dioxide emissions, 71% of electricity use and 40% of total energy use.

  • This number increases to an estimated 48% when the energy required to make building materials and construct buildings is included.
  • Buildings consume 12% of the country’s water3 and rapidly increasing quantities of land.
  • Waste from demolition, construction and remodeling amounts to 136 million tons of landfill additions annually, making up more than 35% of all non-industrial waste (1996).
  • Construction and remodeling of buildings account for 3 billion tons, or 40%, of raw material use globally each year.
  • They also cause negative impacts on human health; up to 30% of new and remodeled buildings may experience acute indoor air quality problems.

Green building survey indicates long-term value and impact of green commercial buildings.

Despite these realities, the U.S. commercial real estate industry has witnessed only a small amount of completed green office construction, primarily in institutional and corporate headquarters buildings.

According to this report, the drivers of green building are:

Increasing Energy Costs - 75%

Government Regulations/Tax Incentives - 40%

Global Influences - 26%

A lack of clear data on development, construction costs and the time needed to recoup costs are the most obvious obstacles in the industry’s slow acceptance of green construction, making education the most important tool in promoting the green construction initiative. Obstacles measured in the research report include:

  • Too multi-disciplinary - 41%
  • Not convinced of increased ROI - 37%
  • Lack of understanding benefits - 26%
  • Lack of service providers - 20%
  • Too difficult - 17%
  • Greenwashing - 16%
  • Lack of shareholder support - 10%

Many developers build to sell, meaning they construct or revamp an office building, lease space to tenants, and anticipate selling the asset within a three- to five-year time frame to repay their debt and secure a profit. The cost to achieve that goal directly relates to time. How quickly the process is completed often affects the profit generated upon sale of the building. The perceived increased cost of green construction spurs fears for developers who are already concerned about the cost of short-term debt and conventional building materials.

However, studies have shown that LEED-certified buildings constructed at the Certified or Silver level have been built without an increase in preliminary costs.

Gold-and Platinum-level projects are seeing an increase of 1-5%. Two percent is the average increased additional first cost. But, during the life cycle of the building, the costs are typically offset within one to two years by operational savings resulting from decreased energy and water use. A 2003 report completed for the California Sustainable Building Task Force surveyed 33 LEED buildings and concluded that eight Certified buildings had an average cost premium of less than 1%.

Incentives and Tax Deduction

The Energy Policy Act of 2005 provides an Energy Efficient Commercial Building Tax Deduction, which serves as an important incentive for commercial developers to construct energy-efficient buildings.

California and New York building codes are among the national leaders in sustainable development. Governor Schwarzenegger signed Executive Order #S- 20-04 on December 14, 2004, requiring the design, construction and operation of all new and renovated state-owned facilities to be LEED Silver-certified. The state is pursuing LEED Silver-certification for new construction projects, and LEED certification for existing buildings and facilities.

Wilson says the development sector has more readily adopted green measures. “There have been remarkable strides made in design and construction. The real opportunity moving forward is on the transaction side as well as within existing buildings.”

The benefits of developing and owning a green building are undeniable. Currently, more than 65 local governments have made a commitment to LEED standards in building construction, with some reducing the entitlement process by as much as one year and offering advantageous tax credits. Annual energy costs—a major office building expense—are reduced by as much as 30%, perhaps more with forthcoming technology.

Green building tenant attraction and retention continues to grow stronger, as major tenants increasingly favor healthier air quality over luxury amenities in premium properties, making a green building a better long-term value than an “SUV property.”

Download the report at: PDF: Green Downtown Office Markets



Edited by Carolyn Allen, owner/editor of California Green Solutions
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