Research into the value of green buildings is starting to show that the investment, financial and appraisal industries may be missing the benefits of green buildings. At a time when the number of green buildings is growing exponentially, there is a need to bridge a knowledge gap between industry engineers, designers, architects, green building owners and those that advise others on the investment, financial and development sides of the industry.
Chris Corps MRICS, President of RICS Canada 2003-4 and RICS Americas' Environmental Faculty representative will be speaking about 'Sustainable Real Estate Valuation' at the April 11th Green Real Estate Conference. Chris was the driving force behind Green Value, an international study produced under RICS leadership based on case-study interviews with developers, owners and occupiers of green office, industrial, retail, residential and educational buildings across Canada, the UK and the US. It also looked at over 300 articles worldwide to assess whether there is a value benefit to sustainable development.
Green Value found that green buildings have higher asset value, or 'green value', than conventional buildings. It found a direct link between market value and green features and related performance. As reported in RENX one of the case studies in Green Value is a recently completed, LEED certified, Class A office building in downtown Toronto owned by SAS. The building was 96% leased before completion and its tenants have taken ten-year leases that are 66% above those in the local market.
An unexpected finding of Green Value is a significant 'benefit to the occupant' of a green building. From a business perspective, approximately 80% of a building occupants' annual business-operating cost is staffing while only 10% are building-related, of which about 1% is energy. Green Value showed there are significant cost savings for the occupant from increased productivity, higher academic performance, improved moral, lower absenteeism, better health and well-being of green building occupants.
The beneficial impact of green buildings for tenants was confirmed by a recent study conducted at the Vancouver Technology Park (VITP). VITP is the first project in Canada to achieve LEED Gold under the U.S. Green Building Council's Leadership in Energy & Environmental Design (LEED™) Rating System. A consultant engaged by one VITP tenant, eTraffic Solutions found a 30% improvement in productivity achieved by moving from a traditional building into VITP .
Response to Green Value has been 'beyond the expectations of its sponsors' according to Chris Corps. It has spurred Green Lease, a study that will examine the impact of lease structures on sustainable practices on a portfolio of buildings. With 'net rent leases,' tenants bear the operating costs and landlords shy away from capital improvements required to implement green upgrades. Conversely 'gross rent leases' mean the landlord pays for upgrades and receives the benefits however there is little incentive for the tenant to conserve energy.
A second spin-off from Green Value is consideration of how valuation standards can distinguish between green and non-green buildings. Chris Corps commented "appraisals are generally undertaken in a method suited to how purchasers think in specific markets however sustainable attributes will increasingly pressure appraisers to use more detailed analysis if differences in value are to be correctly adjusted."
The Green Value study team including Cushman & Wakefield LePage, Busby Perkins & Will and RICS Canada presented Green Value at GreenBuild in Atlanta, Georgia in November 2005. The presentation outlines three key 'contextual' considerations that challenge conventional parameters for analyzing building value (see below).
Energy is 30% of total buildings operating cost
Operating costs represent about 39% of total real estate cost
Real estate costs are 10-15% of a building occupants cost
While the proponents of green buildings have focused on operating cost savings and energy reduction, concentrating on other, more valuable benefits to building occupants is providing a more compelling reason to build green. Chris Corps noted, "As valuation is the internationally accepted audit mechanism, valuers and appraisers need to understand and address this shift."
If green valuation seems 'rather strange and unfamiliar' and you 'really haven't given this green building stuff too much thought' it is time for a professional tune-up. Register now for the Green Real Estate Forum, April 10-11th, 2006 in Ottawa, Ontario.