Study takes 10-year look at green building payoff

A new study takes a deep look at green building ROI.

In an effort to validate the connection between green building and financial health, global real estate investment advisors Bentall Kennedy recently published a new study spanning over a 10-year time frame.

The takeaway? Green building pays. And people care about it.

58 million square feet of research

Bentall Kennedy hired two renowned academics—Dr. Nils Kok, associate professor of finance and real estate at the Netherlands’ Maastricht University, and Dr. Avis Devine, assistant professor of real estate and housing at Canada’s Guelph University. Together they examined nearly 300 office buildings, totaling a whopping 58 million square feet—including 24 million square feet of Canadian properties and 34 million square feet of American properties.

The researchers found that, from a builder’s perspective, green building is a good investment. They determined the positive effect of green building based upon both tangible and intangible measures.

Tangible measures included building occupancy levels and amount of rent charged. However, because green buildings are often newer and better managed than their non-green counterparts, some have been reluctant to accept this data as proof that green building pays off. When paired with intangible measures, like tenant satisfaction scores, even the tangible measures are pretty hard to deny.

LEED-certified buildings had rental rates that were more than 10 per cent higher than non-certified buildings."

So, what did they find exactly? In the United States, LEED certified buildings had 3.7 per cent higher rents, and 4 per cent higher occupancy levels. ENERGY STAR certified green buildings had 2.7 per cent higher rent than non-green buildings, and a 9.5 per cent higher occupancy rate. In Canada, these disparities were even more noticeable. LEED-certified buildings had rental rates that were more than 10 per cent higher than non-certified buildings. Occupancy was 8.5 per cent higher.

The research also examined BOMA BEST, a Canadian certification program that concerns itself with sustainable management and tenant satisfaction. Canadian buildings that were both LEED and BOMA BEST had an 18.7 per cent higher occupancy rate.

Tenants in these buildings had lease renewal rates that were 5.6 per cent higher

Tenants were also more gratified in these types of buildings. Tenant satisfaction scores for properties with BOMA BEST level 3 or 4 certification were 7 per cent higher than the scores for properties without certification. And because a happy tenant is crucial for an ongoing relationship, it should surprise no one that BOMA BEST level 3 buildings also had a higher lease renewal rate. Tenants in these buildings had lease renewal rates that were 5.6 per cent higher.

According to the U.S. Green Building Council (USGBC), the top reason for building green is client demand, but there are a number of other additional reasons. Firstly, LEED-certified buildings offer lower operating costs, and increase productivity. One study in the Journal of Organizational Behavior reports 16 per cent higher labor productivity for workers in green buildings. Not only are workers more productive, but they also cost less. The annual utilities costs attributed to each employee is decreased in a green property. LEED-certified buildings use less water and energy, and produce less greenhouse gas emissions.

The health driver

Another reason tenants may desire LEED-certified buildings has to do with health—namely, the environmental quality of a green building versus a non-green building. According to the USGBC’s January 2013 report from The Summit on Green Building and Human Health, LEED-certified buildings are produce healthier and cleaner indoor spaces. Because indoor pollutants can be much higher than outdoor ones, and because most humans spend the majority of their time indoors, this is a crucial benefit of green properties.

Results from the study show that corporate tenants care about green certification—and that caring translates into tangible monetary benefits for property owners. According to James Gray-Donald, Bentall Kennedy’s Vice President of Sustainability, a certified building can mean an eight to 10 per cent increase in asset value when compared with a non-certified property. 

You can read the full study here.