Higher Occupancy, Higher Lease Rates for Green Buildings

By Tristan Korthals Altes

Buildings that carry LEED or Energy Star certifications have higher occupancy rates and lease for more dollars per square foot than their peers, according to the CoStar Group, a company that provides information services to the commercial real estate industry. CoStar tapped into its database covering billions of square feet of commercial buildings for a study released in March 2008. CoStar’s summation of the study, which noted consistently better financial metrics for green buildings, argues that, “Non-green buildings are going to become obsolete.” As described, however, the study shows a correlation between higher value and green labels, but it lacks evidence that LEED and Energy Star are the cause of that increased value. These results could just be reflecting the tendency for higher-value properties to pursue certification. Either way, however, it shows that the commercial real estate market associates green performance with value.

Since 2006, CoStar has been noting in its database whether a building has achieved LEED certification through the U.S. Green Building Council (USGBC) or if it has earned the federal Energy Star label. In its study, CoStar compared the 973 Energy Star buildings and the 355 LEED-certified buildings in its database against similar conventional buildings and then aggregated that data into averages for occupancy rates, rental rates, and sale prices per square foot (see table). Together, the green buildings represent 351 million square feet of the 44 billion square feet in CoStar’s database.

The study, which CoStar funded itself, also looked at industries most active in leasing space in green buildings and found widespread representation, with the top industries by number of leases being law firms, financial institutions, and business services firms. The insurance industry is also a top tenant for green buildings, when counted by percentage of total leased area. Los Angeles, Houston, and Washington are the top three cities for total commercial green area in CoStar’s database.

USGBC’s Brendan Owens, vice president for LEED technical development, noted that, with the variety of benefits noted for LEED and Energy Star buildings, “It’s easy to understand why owners and tenants are placing a premium on green buildings.”

Financial Metrics for Green versus Conventional Buildings
Building type	Occupancy rate	Rental rate per ft²	Sale price per ft²
Energy Star Certified	91.5%	$30.55	$288
Non-Energy Star peers	87.9%	$28.15	$227
LEED certified	92.0%	$42.38	$438
Non-Leed peers	87.9%	$31.05	$257
Source: CoStar Group, “Commercial Real Estate and the Environment”; All Figures are as of first quarter 2008.

For more information:

“Commercial Real Estate and the Environment”
CoStar Group, Inc.
www.costar.com/partners/CoStar-Green-Study.pdf

 

This article was produced by BuildingGreen, LLC.- www.buildinggreen.com