The sum total of the information reinforce the socially popular trend and the invest opportunity in green buildings.
According to the CoStar study, nationally, LEED buildings command rent premiums of $11.33 per square foot over their non-LEED peers and have 4.1% higher occupancy. Rental rates in Energy Star buildings represent a $2.40 per square foot premium over comparable non-Energy Star buildings and have 3.6% higher occupancy.
"The information we've discovered is very compelling. Like all good science, we discovered it by accident," noted Andrew Florance, president and CEO of CoStar. "Green buildings are clearly achieving higher rents and higher occupancy, they have lower operating costs, and they're achieving higher sale prices."
The study also noted that Energy Star buildings are selling for an average of $61 per square foot more than traditional buildings, peers, while LEED buildings command a remarkable $171 more per square foot.
"We think of Energy Star and LEED in concert with each other," says Bob Ratliffe, an executive vice president of portfolio management with Kennedy Associates Real Estate Counsel LP, which also features development operations. "LEED and Energy Star come up in every investment we make, they come up in the investment committee, they come up in asset management committee meetings. Both are part of our fabric."
The trend is showing an increased desire of both property investors and tenants for buildings that have earned either LEEDR certification or the Energy StarR label. These numbers may light a fire under the investment strategies of institutional investors.
“This past winter, I replaced my roof with an energy efficient white roof. It’s supposed to bring my cooling costs down by 27%. The summer is coming, so we’ll see how well it works notes office building owner Elvin Moon of E.W. Moon Inc. “In the meantime, I’ve been offered 25% more for the building – and I’ve owned the building less than a year.”
Florance conducted the study with Jay Spivey, CoStar's director of analytics, and Dr. Norm Miller of the Burnham-Moores Center for Real Estate at the University of San Diego. The group analyzed more than 1,300 LEED and Energy Star buildings representing about 351 million square feet in CoStar's commercial property database of roughly 44 billion square feet, and assessed those buildings against non-green properties with similar size, location, class, tenancy and year-built characteristics to generate the results.
"We wanted to take each and every one of these green buildings in our database and compare them to the buildings they directly compete with in the submarket," Florance said at the seminar.
Note that green premiums appear to be constricted by the supply of green buildings, which account for just a fraction of the total U.S. building stock (less than 1 percent of space in CoStar's database.) The study indicates that while the number of LEED-certified and Energy Star buildings continues to grow, the supply has not kept pace with demand.
LEED, which stands for Leadership in Energy and Environmental Design, indicates a property's overall sustainability by awarding points for just about any and all sustainable features, from bike racks and rainwater collection and reuse systems, to energy-efficient lighting and low-flow plumbing fixtures. Programs are tailored for new buildings, existing buildings and tenant build-outs, and awards different tiers of certification such as Silver, Gold or Platinum, the highest.
Mark Bennett, a senior attorney with law firm Miller Canfield who specializes in green building and climate change issues observes, "LEED certification is a component in the definition of a Class A office building…If you're building today without LEED, you're building in obsolescence."
The EPA's Energy Star program, is an energy-benchmarking tool and a flag for the nation's most energy-efficient properties. The program targets simple, cost-effective strategies for improving energy efficiency in buildings – things like installing energy efficient windows, turning off computers at night and adding motion sensors to control lighting.
NOTEWORTHY FACTOID: Buildings that have earned the Energy Star label use an average of almost 40% less energy than average buildings, and emit 35% less carbon.
According to EPA, as many as 500 buildings out of the approximately 4,100 commercial buildings that have earned Energy Star use a full 50% less energy than average buildings. Many of the efficiency practices - such as upgrading light bulbs or office equipment - pay for themselves in energy cost savings.
Couple with a minimum net outlay and the premium price a seller can command for an Energy Star building, are a clear demonstration of the overall impact of energy efficiency on property value, deduces Stuart Brodsky, national program manager for the Commercial Properties division of Energy Star.
"The business case for energy efficiency is indisputable," Brodsky asserts. "The business case is so strong that the financial results can be applied to asset value, through increased NOI [net operating income], or leveraged to pursue other aspects of green buildings that do not show as strong of a financial rate of return."
To date, almost 8 billion square feet of U.S. property has been benchmarked through Energy Star.
Expect the green trend to continue, as everyone is promoting it. Last week, the Department of Energy and the EPA released the "Profiles in Leadership, 2008 Energy Star Award Winners," – awards went to 74 organizations across many sectors of the U.S. economy, including schools, hospitals, real estate, manufacturing, and chemicals, were honored for their efforts to reduce greenhouse gas emissions. The winners were selected from more than 12,000 organizations that partner in the Energy Star program.
Among real-estate related companies winning awards were Winton/Flair Custom Homes, which was recognized with the Excellence in Energy Star promotion award. This custom home builder focus in El Paso, Texas, and southern New Mexico and builds 100% of its homes to Energy Star standards. In 2007, the builder constructed 189 Energy Star-qualified homes, bringing the company total to nearly 600.
The Nashville Area Habitat for Humanity was honored with the Award for Excellence in Energy Efficient Affordable Housing, having promoted the use of Energy Star products and building practices since 2006.
The Energy Star and LEED programs work well together. "They're complementary," offers Christian Gunter, a LEED-Accredited Professional, who points out that LEED-EB buildings must achieve a certain Energy Star score as a prerequisite for certification.
"In a recessionary environment there's more than one way to cut costs, it's not just cutting employees." Ratliffe concludes. Look to energy and operational efficiencies emphasized under Energy Star and LEED-EB to cut costs in a transitional environment.