Tenants have cast their votes, deciding that the time for “green” is now. “As tenants and their advisers become more green-savvy, developers and landlords will follow the their leads,” says Brian Hooker, associate with CB Richard Ellis in Atlanta. “This will lead to green real estate dominating the commercial landscape.”
Smart Business learned from Hooker how tenants can benefit from environmentally conscious real estate.
What is green real estate?
Green real estate consists of property where the design, construction and operations are crafted to reduce the negative impact on occupants and the environment. With respect to tenants, buildings can create health hazards due to poor air quality. Properties can also produce air and water pollution, generate solid waste and use significant quantities of energy and water. New buildings can also lead to the destruction of natural habitats.
The United States Green Building Council (USGBC), a private organization, developed a measurement system for green buildings. The system is called LEED (Leadership in Energy and Environmental Design), and it awards points in various categories to both new construction and redevelopment projects. Real estate becomes LEED certified by achieving a minimum number of points. Facilities can earn more points and receive higher levels of certification silver, gold and platinum.
Let me make one distinction: Property can be green through smart choices in how it is built, but only becomes LEED certified if the developer secures a third-party evaluation based on LEED standards.
What are some unique characteristics of green buildings?
Most green buildings aren’t that unique to the naked eye. On the outside, a few have on-site power generation, such as solar panels. Internally, some may contain an above-average level of natural lighting.
The building and remodeling process really sets green facilities apart from traditional ones. Architects, engineer and property managers must shape site characteristics, energy performance, water management and indoor environmental quality to meet specific performance standards. Procedures for appropriate materials use, reuse and recycling also play a role in construction. Soon, today’s unique green features and processes will become standard.
How do these differences affect tenants?
We’ve all heard that green real estate saves in energy costs. As a general rule, $1 in additional rent brings $1.20 in energy cost savings. However, without effective advisers helping with negotiations, tenants may not realize these savings because landlords try to retain the majority of expense reductions.
In addition, healthy, well-lit, pleasant office spaces have been proven to increase productivity. Preliminary studies have shown that green buildings can reduce absenteeism by 15 percent and employee turnover by 7 percent. Such gains from increased productivity will ultimately eclipse benefits from cost savings and can be realized with or without LEED certification.
Going green also boosts a tenant’s image, especially when LEED certification is achieved. This may help some businesses in their marketplace today and, in the future, many businesses will likely require green initiatives from their trading partners. Also, all companies can use green as a selling point when recruiting today’s environmentally conscious young talent.
Green facilities do come at some additional price to occupants and a few compromises in design. Tenants can usually expect a slight premium on base rental costs. However, experienced green practitioners can help find ways to offset this premium.
What are some of the opportunities and challenges in these types of facilities?
Green real estate has limitless opportunities, especially here in the Southeast. We’ve seen very little market penetration, as developers and owners have almost unanimously taken a ‘wait and see’ approach.
The main challenge is awareness, especially among tenants. The majority of the occupants who have pushed for green real estate have done so because of senior leadership mandates, irrespective of case-specific benefits. Why? Because most tenants are not aware of benefits beyond the notion of ‘doing the right thing.’ With further awareness, more tenants will add practical, measurable green features to their real estate requirements.
How does the reality of green real estate differ from the hype?
There’s a misconception that green real estate costs significantly more to develop. This runs contrary to the USGBC’s recent assertion that basic levels of green do not cost more. The reality is that the broad-based acceptance of green materials has brought their pricing in line with traditional materials. There are cost differences that come with achieving LEED certification, which can be minimized by working with green advisers.
Companies should also know that the USGBC has provided an option that allows tenants to deploy green design and processes in their spaces to become LEED Certified Interiors (LEED CI), even within buildings that aren’t LEED certified but meet a few basic requirements.
BRIAN HOOKER, associate at CB Richard Ellis, specializes in helping tenants to reap the benefits of green office and industrial properties, whether in a single location or across an entire portfolio. Reach him at email@example.com or (404) 923-1210.