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Report Makes Business Case For Sustainability

The Phipps Conservatory & Botanical Gardens
The Phipps Conservatory & Botanical Gardens, in Pittsburgh, has the only greenhouse in the world to have achieved a platinum rating in the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) program. Such efforts can pay off for owners and developers as long as the structures are maintained and operated correctly, according to a new report. Wikimedia Commons/Piotrus

In the complex world of green building standards and returns on investment, early research finds an emerging business case for sustainability.

March 19, 2013—Although more research is needed to further define the intricate relationships between green building standards and various measures of return on investment, the data so far point to an emerging business case in favor of high-performance buildings, according to a new report released recently by the World Green Building Council.

The report, “The Business Case for Green Building: A Review of the Costs and Benefits for Developers, Investors and Occupants,” analyzes the results of research during the past 12 years to develop an unflinching summation of the current business case for green buildings. The authors examined the areas of design and construction, asset value, operating costs, workplace productivity and health, and risk mitigation.

What emerges in the report is a complex and evolving relationship between green building standards and various business factors in the marketplace. For instance, as green building becomes more common, research indicates the design and construction industry has found more efficient methods to incorporate sustainability elements into projects. This efficiency has reduced the cost premium for building green.

Conversely, although renters and tenants are currently willing to pay as much as 30 percent premiums for space in green buildings, as these green buildings become more common in the marketplace, research indicates these rent premiums—driven somewhat by scarcity—will likely decrease.

“With so many drivers for green buildings at play, and many parts of the world still at the nascent phase of green building, there can be no doubt that the business case will continue to evolve. Work is still required in some areas, with more data and case studies needed,” the report states.

The research examined in the report indicates a cost premium of -0.42 to 12.5 percent to design and construct a high-performance building. Buildings constructed to the highest sustainability standards, such as net zero, carry the highest construction premiums. The trend in cost premiums has fluctuated with the building market, but has generally decreased during the past 12 years.

The latest data in the report indicate less than a 2 percent premium to achieve the base certification in the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED); LEED Gold carried an approximately 6 percent premium in 2009.

“It is critical to bear in mind that these upfront costs are often offset by a decrease in long-term life cycle costs, particularly in the case of green buildings that feature high-performance façades and energy efficient building systems,” according to the report.

Research reviewed for the report indicates these cost premiums are repaid in part by increases in asset valuations. High-performance buildings carry rent premiums and have higher occupancy rates and lower operating expenses than others, according to the report.

“The premiums in market value generally have been found to be higher than premiums in build costs,” according to the report. “In a number of studies that compared certified green buildings to non-certified buildings in the same sub-market, price premiums were found to be in the range of 0 – 30 [percent].”

The report notes that although research has documented the rent premiums, occupancy rates, and higher values for green buildings compared to standard buildings, researchers have yet to identify the complex marketplace connections driving these results.

In fact, in some marketplaces, some of these premiums don’t exist. The report cites a study of the green condominium market in Tokyo that found building green actually decreased the value of a building by as much as 10 percent.

Research indicates that green buildings use less energy and water than conventional buildings, paying for the construction cost premium within a practical time frame. One caveat researchers have discovered is that high-performance buildings must be properly commissioned. Studies have noted that identifying malfunctions and optimizing the functioning of high-performance systems can significantly increase the savings achieved by green buildings.

The report cites research that indicates high-performance buildings provide a better workplace environment, increasing worker productivity. The presence of daylight, for instance, has been credited with increasing worker productivity by as much as 18 percent and boosting retail sales by 15 to 40 percent. Research has found that hospital patients with exterior views are discharged 8.5 percent sooner than patients without a view.

“The report points to an increasingly compelling business case for green buildings. While there is a growing evidence base for all of these findings, the information being gathered is concentrated in certain regions and climates,” the report notes. “In order to effectively transform the global marketplace, there is a need for more data and for more case studies from around the world.

“This presents an excellent opportunity for businesses to partner with each other, and with academia and government, to better understand the financial implications of a more sustainable built environment. We need the right data to spur better financial decision making,” according to the report.



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