Everyone wants to see more “bang for their buck.” But does sustainable building yield higher property valuations? And if so, how is it measured?
The World Green Building Council’s report The Business Case for Green Building: A Review of the Costs and Benefits for Developers, Investors and Occupants states that green buildings can be constructed at the same cost as conventional buildings. Even more importantly, those investments can be recouped through operational cost savings, and, with the right design features, create a more productive workplace.
Green Building and Property Value, the Institute for Market Transformation, along with the Appraisal Institute, state that credible appraisals must be well-supported by market data and information. A Green-built property valuation should include information that explains why it stands out from its peers. Focusing on specific measures of value can help make the case for a higher appraisal.
Four Components of Value
- Revenue: Tenants are increasingly willing to pay a premium for green spaces. For them, leasing green space is an opportunity to demonstrate a commitment to sustainability, attract the best employees and improve productivity.
- Occupancy: Green buildings often have features that result in higher occupancy. Savings can also be realized as a result of tenant retention and the corresponding reduction in lost rents, lower vacancy at turn over, as well as improved lease-terms.
- Operating Expenses: Lower utility bills, realized from steadily improving energy codes, green certification requirements like LEED and Energy Star, and well-executed retrofits, make the most straight-forward value proposition for owning a green building.
- Risk: As a hedge against changing consumer preferences, new laws, and increasing energy prices, high-performance buildings offer risk-mitigating protections to owners and banks. Having a best-in-class market position can future-proof assets, protecting the going-out cap rate. One major insurer, recognizing the relative safety of green assets, now offers discounts for green buildings.
According to the Appraisal Institute, “From the perspective of a property owner, green value can be considered in the abstract. Viewed in the context of an operating statement, green building property performance and value can show up across the board in quantifiable property metrics and favorable adjustments made during appraisal and underwriting.”
Design and Construction Costs: As building codes around the world become stricter for green buildings, there has been an overall trend for a reduction in design and construction costs. Supply chains for green materials have matured as the industry becomes more skilled in delivering green buildings.
Workplace Productivity and Health: Newly documented evidence has found that the physical characteristics of green buildings along with improved indoor environments positively influence worker productivity as well as occupant health and well-being. This results in measurable bottom-line benefits for businesses.
As the green building industry continues to expand, more data is gathered which demonstrates the real economic benefits of sustainable design and construction. Combined with the ecological necessity of reducing our carbon footprint across the construction industry, the public is increasingly demanding that designers and builders use sustainable practices and materials, such as FSC®-certified forest products.