There are efficient buildings and non-efficient buildings. Living in a non-efficient building is like driving an old Hummer. Yes, it “works”, but 3 miles a gallon, and having tech from 2003 isn’t very appealing. Consumers have embraced new car technologies such as fully-electric vehicles, regenerative braking, and collision avoidance. If you want your car to have cutting-edge technology, and reduce your impact on the environment, why would you not want your building to do the same?
LEED is a green-building certification program for the design, construction, and operation of sustainable buildings. As more companies focus on a triple bottom line (people, planet, & profit), LEED helps companies keep track of their progress. They allow buildings to be branded with a Certified, Silver, Gold, or Platinum certification that broadcasts the level of efficiency in a building. As the building standards for sustainability increase over time, LEED standards are synchronously raised higher to push for even greater efficiency. However, this also leads to some challenges where buildings previously built to LEED standards 10 years ago may not be meeting some of today’s standards. Most LEED projects do not need to recertify once they have received their certification and this presents an issue where tenants may think they’re working in top tier sustainable building when they’re not.
Another issue of LEED is that the program looks at sustainability in a limited context. For example, a newly constructed building could use recycled materials and locally source its construction materials to limit carbon emissions but if the project replaced an existing building that was built just 5 years ago, was it a sustainable project? Should the existing building have been utilized for another 40 years to maximize its useful life?
Even though many of these issues remain, our society has made gradual but important shifts that will ensure energy-efficient and sustainable buildings are the future. There are numerous incentives, programs, and laws that are influencing the path of development in the future. There may be a point where non-efficient buildings will be penalized, if not by the government, then by other stakeholders.
Building to a certain LEED certification will incur additional costs in construction and administration to developers, but the added cost is often offset by the potential premium in market sales and rentals. There is also a potential for lower vacancies and higher rents due to many corporate tenants having their own ESG targets. According to Cushman Wakefield, developers typically incur additional costs of 7% to 9% for Gold and Platinum level certifications; however they may also achieve rents 11% higher on a PSF basis over their non-LEED certified competition.
So why should you care? When companies are in the market to buy or rent a new space, LEED certification matters. Tenants want to work in a building that provides better air quality and a smaller impact on the planet. Therefore, developers and investors will need to assess how to compete in a marketplace that increasingly emphasizes minimizing environmental impact.
Will we see LEED-certified buildings continue to gain a larger market share?
My background has been focused on delivering a particular kind of green building: Multi-family construction using Passive House principals. Passive House construction applies a number of strategies to insure optimal energy performance over the life of the building. A number of advantages accrue to the owners and builders, as well as the end-users, when delivering green structures:
1. More Affordable to Operate: A Passive House (PH) is cheaper to operate: Energy savings can be up to 70-80% less than standard buildings.
2. PH environments are more comfortable: the temperature delta between sitting by the window and sitting by the interior corridors is dramatically less than standard drafty buildings. This makes for a more comfortable environment.
3. Cleaner Air: Due to the ERV units installed, the air is healthier from the sourcing of clean, filtered air provided 24/7. For people who are asthmatic, this is a significant health benefit. Children who have that condition can live asthma-free while in their homes. This cleaner air also provides a less dusty environment which makes the space generally cleaner to live in, with less dust accumulation.
3B. Health Benefits for living through a Pandemic – With the air filtered 24/7, clientele who are concerned about environmental health issues can gain increased mental comfort knowing that they are providing the healthiest spaces for their end-users.
4. Quieter thru Air-Sealing – Because the property is properly insulated and sealed, the spaces are much quieter from outside noise.
5. Floor Layouts Improved – Since there are no heating or cooling elements like radiators, there are improved layouts which maximize the floorplan.
6. Financial Benefits to the Sponsors and Investors: Quicker absorption in the market, lower financing fees due to quicker sales, improved IRR’s from slight price premium and lower financing fees. If owners need to stabilize the asset through rentals, properties deliver lower operational expenses and therefore improved Net Operating Income. Better cash-on-cash returns from these lower operating costs and quicker lease-ups,.
7. Carbon Offset Profits – There may be an opportunity to sell off Carbon Offsets, and owners will be prepared for that eventuality.
8. Green buildings will be prepared for Local Law 97 in NYC, which will charge old properties a large surcharge for their energy inefficiencies. This begins in 2025, with a look-back to 2024’s energy base-line usage.
When looking at the many benefits provided to all key stakeholders, building green is the better way to build in the 21st century, and provides financial benefits above and beyond the small construction increase to deliver a superior green property,