A New Study Examines Three Office Buildings to Determine Green Building Benefits and Value
On a national level, tenants are springing for sustainable and energy-efficient buildings, according to recent studies that have revealed higher-than-normal occupancy levels and rental rates at those properties. But on an individual property level, how exactly are those claims playing out?
The answer: as expected, according to a new study sponsored by the Cascadia Region Green Building Council, Cushman & Wakefield and the Vancouver Valuation Accord.
The study, titled “High Performance Green Building: What’s it Worth?” profiled two office buildings in the Pacific Northwest and one in Canada to determine how sustainability and energy efficiency are affecting property value. Although the answer to that question is complicated, the study did find that green attributes are having a positive impact on all three properties.
Read the study.
Both of the U.S. buildings are LEED-certified and outperformed their non-green peer buildings in several categories, the study concluded after reviewing actual operational and tenant data.
Alley24 East, a 210,000-square-foot office and retail complex in Seattle’s Lake Union district, experienced quicker lease-up and higher occupancy than its direct peer buildings while maintaining “competitive” rents that still beat the industry average, the study said.
On top of that, the property’s anchor tenants, construction firm Skanska and the design group NBBJ, both reported productivity benefits after moving to the property. Skanska reported 30 percent fewer sick days among its employees, and NBBJ tallied a 10 percent increase in net fee revenue per person.
Vulcan Real Estate, the property’s owner and developer, completed the building in 2006 and earned LEED Silver certification for the core and shell a year later. Skanska and NBBJ later achieved LEED certification for their offices within the building.
At 200 Market Place, a 19-story office tower in Portland that earned LEED Gold certification for existing buildings in 2006, occupancy was higher in the first quarter this year (99 percent) than at any comparable office tower in Portland, according to Cushman & Wakefield data. Built in the 1970s, the property’s energy consumption increased each year from 2004 to 2006, but then in a sharp post-certification turnaround declined by 3.5 percent in 2007 and by another 8.7 percent in 2008. Operating expenses have also declined, the study said.
Russell Development Co. owns the building, which is anchored by Regence BlueCross BlueShield of Oregon.
Those results are consistent with a
study released last year by CoStar Group and the Burnham-Moores Center for Real Estate at the University of San Diego that found buildings with LEED certification or the government’s Energy Star label averaged higher occupancy levels, lease rates and sale prices than non-green buildings. Other studies conducted by real estate experts at leading universities have supported those findings.
Yet, the question of how exactly those premiums translate into value is less clear, the study indicated, as the financial and investment communities try to balance the many factors now affecting green buildings.
“For anything that doesn’t have a lot of documented historical precedent, it’s a challenge for valuation professionals,” said Theddi Wright Chappell, managing director of Cushman & Wakefield’s Washington Valuation Services group and leader of the firm’s National Green Building and Sustainability Valuation and Advisory Practice, who co-authored the study.
The value of a green building can depend on the ability of an owner to capitalize operational efficiencies, the study said.
At Vancouver Centre, a 34-story building in British Columbia that received an energy efficiency retrofit, the study found that the project’s 19 percent ROI could potentially increase by 10 times that amount if tenants shared the life-cycle costs and benefits of the retrofit through green lease structures.
In other cases, value depends on specific market conditions like demand, regulation and the availability of resources. A green building in Oregon that conserves water would be valued differently than the same building in Arizona, where water conservation is more critical, Wright Chappell said. Similarly, the value of an energy-efficient building in heavily regulated Europe is more than in the United States.
In U.S. regions where sustainability has been slower to take root, the market may not recognize the value of LEED or Energy Star buildings. But in other regions, like the Pacific Northwest, “if you have an office coming out of the ground, it needs to have a certification or at least document that it has sustainable characteristics before it gets accepted in the market,” Wright Chappell said.