What is “Green Building”?
Utilities expense is the number one most controllable cost for real estate, so property managers continually look for ways to reduce energy use and costs. In addition to cost savings, property owners understand the drain on the environment caused by high energy use, so they seek the means to leave less of a carbon footprint. Building owners are becoming more accountable to shareholders, stakeholders, and tenants alike when it comes to sustainability efforts.
What is green building: “Green building” can be defined by Brundtland Commission for UN (1987), adopted by Vancouver Valuation Accord in 2007:
“…development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
A green building is a property that focuses on efficient utility use, tenant welfare, and the environmental impact of the building envelope. These buildings seek to reduce waste and environmental impact while protecting tenant health.
According to the “Green Building Council,” there is a demand for green buildings. The demand stems from green buildings producing increased occupancy rates, increased ability to secure financing, lower transaction fees, and a higher sales price. The question becomes: do green buildings really increase asset values?
What is Green Building: Increased Net Operating Income
The growing demand for green buildings by tenants, investors, and regulators positively influence rents, tenant retention, and regulatory incentives. Green buildings are less expensive to operate and provide greater occupant comfort.
Tenant renewal is important, as the cost of a tenant leaving can be high. If a tenant renews, there is no downtime, potentially lower brokerage fees, and less tenant improvement allowances (TI). With high tenant turnover, there is a loss of income, as well as incurred costs in the form of brokerage fees and higher TI.