Do Green Buildings Rent for More?

green-building-appraiser

In our latest case study, IRR San Diego reviewed leasing information in an attempt to find if “green buildings” (specifically LEED-certified or Energy Star buildings) command a significantly greater rent than non-green buildings (buildings without these certifications). While it is difficult quantify the impact on value for these types of properties due to limited data, our research will focus on asking rents for these types of buildings.

First, we provide the following definition of Green Building from the U.S. Environmental Protection Agency.

Green Building. The practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building’s life-cycle from siting to design, construction, operation, maintenance, renovation, and deconstruction. This practice expands and complements the classical building design concerns of economy, utility, durability, and comfort. Green building is also known as sustainable or high-performance building.

In general, a green building has these six elements:

  • Site
  • Water efficiency
  • Energy efficiency
  • Indoor air quality
  • Materials
  • Operations and maintenance

Due to the limited data, we relied on CoStar lease listings that specifically labeled a building with a LEED certification or Energy Star rating. We searched for existing, Class A office buildings for lease that were:

  • Built after 2000 (to avoid factors concerning an older building)
  • Located in the city of San Diego, between approximately Highway 56 and Interstate 8 (so that there was not an issue with submarket superiority/inferiority)
  • Over 50,000 square feet in size

The following table summarizes our results:

Green-building-rents

Based on a review of this data, there is a minimal difference in rent between green buildings and non-green buildings. While the lower rent range for non-green buildings is less than green buildings, there is only a 3% difference from the average rent.

In terms of ownership of a green building, factors that influence the value include the actual return one achieves as well as energy efficiency. While this brief, limited study does not show a significant rental impact for a property being LEED-Certified or having an Energy Star rating, it does not mean that this type of value is not recognized in the marketplace. An analysis of both income and expenses for a property is necessary in determining of value of going green.

If you are interested in green building valuation or need an appraisal of a sustainable property, please contact us today at 858-259-4900 or sandiego@irr.com.

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