Do green buildings make dollars and sense?

Dave Pogue

After several years of developing, introducing and implementing sustainability practices in a wide range of office building projects around the country, CB Richard Ellis (NYSE: CBG) arrived at the logical question: To what extent are we impacting the industry, and is the effort we’re making to improve our clients’ operating efficiencies producing positive outcomes?

In 2009, CBRE, in conjunction with the University of San Diego (USD), launched the largest study of sustainable commercial buildings of its kind, focusing on 154 buildings in 10 widely dispersed geographic markets. All the buildings had earned an Energy Star label and ranked in the top 25th percentile of comparable Energy Star buildings in either 2008 or 2009. The buildings, which totaled more than 51 million square feet and had an average Energy Star score of 83, ranged from fewer than three years old to more than 40, and in size from 80,000 to more than one million square feet. The study used comparison market data collected by the CBRE Information Management teams in the 10 markets and also relied on quarterly building data updates from various CBRE real estate managers.

Key to the study’s success was the collaborative work of Norm Miller, who has a doctorate in real estate and finance, and his USD research team at the Burnham-Moores Center for Real Estate. With a CBRE managed population of nearly 3,000 occupants, the team had access to a deep pool of respondents which, through a systematic process and the accurate collection of data, could render critical insights into the motivation of tenants and the choices they make based on a building’s environmental components.

Expectations, experiences and attitudes toward sustainability play an important role in tenants winning corporate support for an occupied space, with improved recruitment, retention and, especially, increased productivity being key factors.

These results produced a number of interesting findings:
For starters, the economic findings reinforced prior studies that demonstrated the positive impact of sustainability on both achievement of rental rate and occupancy rates of the buildings. Most pronounced was the finding that buildings achieved rental rates 13.1 percent higher than buildings in previous studies. The influence on vacancy levels was less dramatic, with a smaller than expected 3.5 percent reduction. One conclusion is that the surveyed tenants are weighted toward real estate and financial services firms, so were more directly impacted by the downturn and their sector’s larger retrenchment.

Of particular interest were operating expenses: Virtually no difference was found in overall expenses, although energy-related costs were lower and there were few if any outlier buildings (anomalies outside the curve) with extreme expense costs. A shortcoming of the study may be the small number of comparison properties reviewed, which is being addressed in 2010.