May 15, 2014 MeissnerJacquet

Building green means incorporating environmental, economic and social sustainability considerations, often called the triple bottom line, into every aspect of planning, design and construction. It is projected that 51% of firms building in 2014 will be dedicated to constructing green buildings.

The commercial buildings sector has the most meteoric growth in green building. According to Forbes, “By 2015, green buildings in the commercial sector are expected to triple, accounting for $120 billion to $145 billion in new construction and $14 billion to $18 billion in major retrofit and renovation projects.” What used to be “the right thing to do” is now making solid business sense on every level. It has become a matter of course for builders to consider how sustainability can be assimilated into commercial real estate, both new and existing. Building owners and occupiers are demanding it and developers must deliver it.

At a high level, two elements command or galvanize organizations and individuals to zero in on sustainability. The first – legislation standards – are outside of the control of commercial real estate / construction professionals. The second – business drivers – allows commercial real estate professionals who have elected to build green to provide thoughtful leadership on green building to their peers, their industry, and their community.  This helps establish their credibility and positively impacts their bottom line.

Meissner Jacquét Commercial Real Estate Services experiences first-hand this energy efficiency trend with the property owners, tenants and vendors that it interacts with.  Jerry Jacquet, Principal at Meissner Jacquét, notes that “more and more property owners are electing to institute energy management and sustainability practices and the tenants are enjoying some of the savings on operating expense pass-throughs.”

In addition to these overarching factors, a number of interesting trends have emerged surrounding the global drive to build green. A report titled, World Green Building Trends, (produced by McGraw Hill Construction in partnership with United Technologies) walks through green building trends in 60 countries across the globe to uncover the level of global activity, challenges, social and environmental influencers, business benefits, legal factors, general impact, and ratings systems. There is an emphasis on the 9 countries that are leading the effort, with the United States as one.

One of the primary authors of the report, John Mandyck, Chief Sustainability Officer, UTC Climate Controls and Security, introduces the report this way, “By promoting greater efficiencies for energy and water, green buildings lower building costs while conserving the world’s precious resources. This powerful combination of built-in payback with environmental stewardship creates a new value proposition that is accelerating in all regions of the globe.” Let’s walk through some of the trends cited in the McGraw Hill reports and in other similar studies.

Institutional investors are embracing ESG (energy, social, governance) best practices. Commercial real estate investors are taking into consideration a public corporation’s feasibility for long-term sustainability when performing due diligence. While the first consideration is always the financial viability of the corporation, more and more often, an ESG analysis is done as well. For a growing number of investors, ESG factors are not only very tangible, but are felt to reflect the caliber of both a company’s leadership and its ability to stay ahead of the curve.  Corporate executives who recognize the importance of ESG and Sustainability to the capital markets partakers and players — and for a growing number of their partners — are creating compelling Corporate Responsibility and Sustainability strategies, resources, programs, and key partnerships with instrumental third-parties.

Cities and states are stepping up energy disclosure requirements. Several cities and a few states in the U.S. have established policies requiring sustainability benchmarking and disclosure for large buildings. All cities and states that require benchmarking call for the use of ENERGY STAR Portfolio Manager, a free online software tool created by the U.S. EPA.  Kevin Tagle, Vice President at Meissner Jacquét, ensures that the company’s real estate management staff is kept abreast of the changing governmental policies, such as California’s Nonresidential Building Energy Use Disclosure Program (AB 1103).  Besides the requirement to conform, Kevin says that “property owners should view the bill as an opportunity to take advantage of available energy rebates / incentives.”

Commercial real estate occupants and tenants are demanding green. “Green building is fundamentally altering real estate market dynamics – the nature of the product demanded by tenants, constructed by developers, required by governments and favored by capital providers,” according to RREEF Research.  RREEF goes on to say, “The upshot will be a redefinition of what constitutes Class A (high end) properties and even institutional-quality real estate.”

Real estate investment funds are developing sustainability reporting requirements. Increasingly more investors realize that social and environmental factors have an impact on the value of a commercial real estate property, and there is growing interest in sustainable buildings. Real Estate investment fund organizations are developing comprehensive reporting systems, suitable benchmarking methods for energy consumption, and pollutant emissions.

There are sustainability Tax incentives too. Government agencies, utilities and others offer a variety of tax credits, rebates and other incentives to support energy efficiency, encourage the use of renewable energy sources, and support efforts to conserve energy and reduce pollution. The rating and evaluation of the impact these sustainable solutions make has developed into an industry in itself. Premier methods of assessment include BREEAM and LEED.

Commercial Real Estate Asset Managers are using green strategies to reduce costs. With comprehensive green asset management, operating costs go down, tax credit opportunities are available, environmental hazards are decreased, occupant utility savings improve, and potential tenants are drawn to the allure of a healthy, green work environment.

Finally, growing empirical evidence is showing that there is long-term value in “going green”.  Data shows that it pays by meeting regulatory compliance, mitigating overall risk, garnering real savings in materials, and reducing health risks. It’s also the environmentally responsible thing to do.

Sources:

  • World Green Building Trends – by McGraw Hill Construction and United Technologies
  • 8 Reasons Sustainability Trends Are Driving Commercial Real Estate Value – by National Real Estate Investor
  • California Energy Commission, Nonresidential Building Energy Use Disclosure Program (AB 1103)