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The Business Case for Green Buildings 2008

By Jerry Yudelson
Yudelson Associates
December 14, 2007


Unprecedented Growth Meets Unrivaled Opportunities

As we round the bend and head for home in 2007, I want
to recap how the business case for green buildings has
unfolded this year and to forecast how it is likely to
develop in 2008. To sum up 2007 in a nutshell: the
business community has totally bought into green
buildings. That’s it, end of discussion.

The only question now is: How fast will “building green”
become the norm for all corporate and developer
decisions? In 2007, we saw more than 70% growth in
cumulative LEED registered and certified projects, on
top of more than 50% cumulative growth in 2006.
Essentially, the cumulative number of registered and
certified projects has increased 250% since the end of 2005!

Why? Three seminal events the past two years: An
outpouring of global concern over carbon dioxide
emissions from energy use of all kinds; Al Gore’s
Academy Award and Nobel Peace Price for An Inconvenient
Truth; and Hurricane Katrina’s exposure of the
vulnerability of a major American city to natural
forces. As a result, the American public is finally
demanding action on climate change, in ways large and
small. Since American business does know how to listen
to the consumer, it realizes that a good part of its
future success will come from reducing its “carbon
footprint,” through energy conservation retrofits and
greening new buildings.

So what does this do to the business case for green
buildings? Here’s what I’m hearing from speaking to more
than two dozen business and industry groups the past year.

1. Saving energy: this has gone from being a “good idea”
to a business necessity. It’s not just that energy
conservation has a positive life-cycle cost impact, but
also that it offers a direct reduction in an
organization’s “carbon footprint.” A number of studies
have shown that energy conservation not only also offers
a positive “life-cycle-cost” investment (you make
money), but that it’s the most cost-effective way to
lower society’s carbon dioxide output, one that doesn’t
require new technology, just an ability to finance the investment.

2. It’s about the people, stupid! Corporate American is
desperate for good people. The “Gen X” group, now
roughly 30 to 43 years old, is particularly in short
supply. By 2014, in the 35 to 44 year old age group,
there will be 7 percent fewer people than in 2005, in
absolute numbers; in terms of the size of the economy in
2014, it will be a shortfall of more than 20 percent.
This age cohort represents senior managers, young CEOs,
top salespeople, top technical people, i.e., those who
help the most in growing revenues and profits. If a
company cannot attract and keep these people, by
conforming business practices to their values, it will
not prosper. Green building, which represents a visible
and positive affirmation of values of sustainability and
environmental responsibility, makes the statement that
companies need to make to get and keep good people.

3. It increases property values. Look no further than a
study released in October by Professor Norman Miller of
the University of San Diego. Reviewing more than 2,000
large office buildings in the CoStar® database of
commercial properties, Miller’s study revealed that
Energy Star-rated office buildings (those in the top 25
percent of energy performance) since 2004 have had 2%
greater occupancy and a $2 per square foot greater
rents. To top that, in 2006 Energy Star buildings sold
at a 30% premium (in dollars per square foot) to
non-Energy Star-rated buildings. Case closed! Green
buildings are more valuable, and destined to become more
so each year.

4. The demand is there. Commercial office tenants are
waking up to the business case for productivity and
health in LEED-certified buildings, especially those
that offer superior daylighting and indoor air quality.
A 2006 review by Lawrence Berkeley National Laboratory
of 33,000 surveys of employee satisfaction with their
working conditions showed that certified buildings had
statistically-significant greater satisfaction than
non-certified buildings. In the public sector, the
demand is also growing, as one jurisdiction after
another makes a commitment to LEED-certify all future
public buildings.

5. Green buildings mitigate risk. Leading insurance
companies stepped up in 2007 to offer reduced-cost
commercial insurance products, recognizing that green
buildings are at lower risk for indoor air quality
problems and are likely to have smoother operations,
since they’re all commissioned at the time of occupancy.
With faster lease-up of commercial buildings, higher
rents and greater occupancy, green buildings also
mitigate the “market risk” for developers. With lower
operating costs and greater tenant satisfaction, green
building also mitigate the “economic risk” of return on
investment for building owners.

6. The media is all over green buildings. Just sign up
for Google Alerts, put in “green buildings” as a search
term and you will get five to ten (or more) news
articles every day, plus an equal number of blog posts.
In other words, a company with a green building
commitment and certification of all future projects
receives enormous positive media coverage, with
significant benefits for marketing and public relations
purposes.

7. Follow the money. Investors of all stripes made 2007
the year that “responsible property investing” became
the norm for Real Estate Investment Trusts (REITs),
public and union pension funds, other investment groups,
and many individual investors. People want to invest in
buildings that will increase in value and that have a
lower carbon footprint; green buildings fill the bill.
Even with the global crisis in subprime mortgages, many
leading banks have stepped forward with aggressive green
lending programs. When it’s easier than ever to finance
green buildings with both equity and debt, developers
get on board in a hurry.

8. Green buildings no longer carry cost premium. All of
the above business case items have certainly stimulated
demand for green buildings, but many business people
think that the major barrier is still a significantly
higher initial cost. A 2007 study by the World Business
Council for Sustainable Development showed that business
people still believe green building practices carry a
10% or greater cost premium. However, this year
Harvard’s Green Campus Initiative delivered the first
LEED Platinum building with no capital cost premium.
With more than 1,100 LEED-certified projects already
finished, there’s no shortage of design and construction
teams with the experience, skill and knowledge to
deliver high-performance buildings on conventional
budgets. Savvy building owners and developers are
beginning to demand this level of performance.

9. We have trained an entire industry in green building
design and construction practices since 2000. With more
than 42,000 LEED-Accredited Professionals on record and
more than 60,000 people having taken LEED workshops,
there is plenty of capacity to deliver another 1,000
LEED-certified commercial and institutional projects in
2008, and that’s my prediction. With each project
averaging 100,000 sq.ft., we’re looking at 100 million
square feet of such projects, well over 25% of the total
commercial building market.

10. The green building revolution is spreading to all
commercial market sectors. In 2007, the retail, hotel
and healthcare sectors all began to move toward LEED
certification and energy efficiency in new projects. For
example, in August, Best Buy announced that all future
stores would be LEED certified. In November, Regency
Centers, a major public shopping-center developer,
announced that 60% of all new centers in 2010 would be
LEED-certified (and there’s not even a LEED rating
system yet for shopping centers!)

If you want to know more about the business case for
green developments, pick up a copy of my new books, The
Green Building Revolution (Island Press, 2007) and
Marketing Green Building Services: Strategies for
Success (Elsevier/Architectural Press, 2007). If you
want a good read or need a last-minute “stocking
stuffer” for the green building enthusiast in your life,
pick up my Green Building: A to Z (New Society
Publishers, 2007).

I’m wishing all of you a very Happy and Prosperous
(Green Building) New Year!

Jerry Yudelson is principal at Yudelson Associates,
Tucson, Arizona, a consulting firm whose motto is
“growing the business of green building.”

 

Promoting Green Building Design, Construction and Operation, Sustainable Living,
Clean Technology, Renewable Energy Resources and Energy Independence