Energy represents 30% of operating expenses in typical office buildings – the single largest and most manageable expense. Unfortunately, most owners are often unsure how to value potential retrofits that can help reduce this expense.
‘Green’ rating systems were designed to address exactly this problem and provide owners and occupants with an idea of a building’s energy efficiency and sustainability. After conducting an in-depth analysis on the different rating systems, The Berkley Program on Housing and Urban Policy found that the specific type of rating system used matters. Specifically, they discovered that there are statistically significant effects for Energy Star buildings but none for LEED certification, the two most popular rating systems.
This result suggests that tenants and investors are willing to pay more for an energy efficient building, but not for a building advertised as “sustainable” in a broader sense. The Berkley analysis included a few other notable findings – namely, rental rates are 3.5% higher per square foot with an Energy Star building versus a non-Energy Star building (6% higher effective rents) and sales prices are 16% higher.
So what does this mean for building owners? Well, at a capitalization rate of 6%, the increase in effective rents suggests that the value of a green building is $5.5M more than an unrated Energy Star building all else being equal. Further, a recent report from Ceres and Mercer indicates that companies who fail to factor energy efficiency into their real estate investment decisions might be assuming significant risk in the future and could be overlooking substantial opportunities to enhance returns.
Reposted from retroficiency.com