The Economics of Green Buildings

Who pays for Green? This may be one of the questions among all concerned before deciding to go for 'green'! The economics of green buildings favors green upgrades since they can add value to a building. 

According to RREEF Research, green building is fundamentally altering real estate market dynamics – the nature of the product demanded by tenants, constructed by developers, required by governments and favored by capital providers. Many tenants are now willing to pay a premium for space in green buildings because of the lower operating costs, higher worker productivity and other benefits that comes with the superior environmental performance of green buildings.

One of the significant benefit of 'Green Buildings' is the energy saving. But, it may be assumed that this benefit is ultimately enjoyed by the owner of the building and not by the original designer and construction contractor. The experts believe that this is a perceived disconnect between cost and benefit and recent findings say differently:

- Green buildings sell at a higher price. McGraw Hill measured the price premium for the sale of Energy Star ®-labeled buildings to be 12%.3 Another study estimated the premium on LEED-certified buildings at 31%.

- Green buildings command higher rent premiums. By comparing rental agreements involving Energy Star buildings with non-Energy Star leases, researchers at Maastricht University found that efficient buildings command 3.5% higher rents.

- Green buildings are more attractive to tenants. The same study found a 6% higher occupancy rate for Energy Star certified buildings.