DO GREEN, MAKE GREEN

Green buildings are becoming an important issue in commercial real estate.  More and more companies and developers are trying to get certification under the LEED standards for new buildings they are building and many observers expect the movement to continue growing.

The following article appeared recently in About Real Estate, a Free TWR Weekly Publication by Torto Wheaton Research, a subsidiary of CBRE

DO GREEN, MAKE GREEN          by Harvey M. Bernstein       April 20, 2007

In the highly competitive market of commercial real estate investment and development, think Green! Green… Green is for money and Green is for sustainability. Owners and builders are realizing that Green building is an important market differentiator.

Sustainability policies and Green construction practices are no longer a fad. They are having a significant impact on the real estate industry–both commercial and residential–on a daily basis. You cannot pick up a magazine or newspaper today without finding an article on Green building.

According to recent research we have completed at McGraw-Hill Construction, 63% of Corporate America (firms $250 million or greater) see sustainability, Green building and other Green efforts as providing a competitive advantage through market differentiation.
 
In 2005, Green building comprised approximately 2% of the U.S. construction market for commercial and residential construction, which was about $10.2 billion. With growth projected to increase to 5-10% of U.S. construction, the Green market by 2010 will be between 29 and 59 billion dollars, not counting residential remodeling.

Spurred into action by rising energy costs and widespread concerns about climate change, our research shows that federal, state, and local governments have become key players in the Green movement by passing legislation and establishing incentives to encourage sustainable practices in the private sector. Diverse actions–ranging from executive orders to community commitments–have expanded Green building, energy-efficiency and social responsibility dialogue to include corporate America.

Some states have recently stepped up their commitment to a Greener private sector by tackling issues beyond Green building regulations, such as encouraging alternative energy sources and reducing Greenhouse-gas emissions. Local governments, which have millions of square feet of building space under their direct control, have taken a unique leadership role in the Green building arena. Many local governments have striven to be an example to the private sector by ensuring that their public sector buildings are built according to the LEED (Leadership in Energy & Environmental Design) rating system developed by the U.S. Green Building Council (USGBC). In fact, USGBC is currently developing a full set of environmental performance indicators so that companies can better track the aggregated environmental impact of their real estate portfolios.
 
Commercial real estate is seeing paybacks that owners say justify Green building. Most notably, owners indicate that Green building is leading to the following advantages:
 
  8-9% decrease of operating costs across the industry
  Increase of building values around 7.5%
  Expected ROI improvements of 6.6%
  Expected occupancy ratio increase of 3.5%
  Expected rise in rent rate by 3%
 
We are seeing that builders are increasing their involvement in Green building at higher rates on the single-family residential side than on the commercial side. In fact, McGraw-Hill Construction research shows that in 2007 the residential construction industry will have reached its “tipping point,” with more than 50% of homebuilders building at least 15% of their homes as Green homes. With this rapid change in the homebuilding marketplace, the rest of the home builders will have to enter the Green marketplace to remain competitive.

This shift in market demand toward Green is driving more change in the real estate community and corporate America. Pension funds, corporate boards, CEO’s and CFO’s are now focusing their attention on adopting business strategies and activities that are consistent with the careful design and environmentally and energy-efficient construction, operation and reuse/removal of the built environment. When you consider that buildings account for 40% of all energy consumed in the United States as well as 71% of electricity and over 38% of carbon dioxide emissions, it is easy to see why. The less energy buildings consume the lower operational costs. Improvements in indoor air quality and the amount of daylighting are contributing to better employee performance which is also reflected at the bottom line.

Why Green? The most important factors architects, engineers, contractors, owners (A/E/C/O) and homebuilders alike identify for pursuing Green building are “lowering energy/life cycle costs” and “doing the right thing.” Approximately 86% of the A/E/C/O community and approximately 97% of homebuilders report participating in some sort of Green-building activity. Almost 70% of these leaders in today’s architecture, engineer, contractor (A/E/C) and owner communities report they believe project sales associated with commercial Green building is increasing.

To further emphasize this point, research results from McGraw-Hill Construction’s “Greening of Corporate America SmartMarket Reportâ€?, based on research conducted for Siemens Building Technologies, Inc., shows real estate portfolios of corporate America to be increasing in the percentage of Green buildings. Based on projections, Green building will reach a tipping point in 2009, with 82% of companies greater than $250 million Greening at least 16% of their portfolios.

With energy costs comprising the single largest controllable operating expense for office buildings, lowering energy costs poses a tangible payback for corporate leaders to embrace. Much of corporate America perceives Green activities and Green building as being part of their growth strategies. This is a strong enough reason for the real estate community to take more notice and to begin to incorporate the increased value associated with Green buildings in its business strategies.

Harvey M. Bernstein, F.ASCE, is a leader in the engineering and construction industry for over 30 years. He has served as a member of former Secretary of State Colin Powell’s Advisory Committee on Leadership and Management and is a member of the Princeton University Civil and Environmental Engineering Advisory Council and the Harvard Joint Center on Housing Policy Advisory Board. He also is a visiting Professor with the University of Reading’s School of Construction Management and Engineering in London, England where he serves on their Innovative Construction Research Center Advisory Board. Bernstein is a frequent speaker at Green conferences, including USGBC and NAHB, and has written numerous papers and reports covering innovation, energy conservation and sustainability in the built environment. He co-authored the book Solving the Innovation Puzzle: Challenges Facing the Design and Construction Industry (ASCE Press, 1996).