Can You Build Green AND Make a Profit?

The Economics of Green Building

On March 3 of this year, the World Green Building Council (WorldGBC) launched a global project to prove that green office buildings actually do result in greater business productivity. This comes at a time when business owners, developers, and investors remain skeptical about the profitability of “going green.” With this project, WorldGBC hopes to supplement the research summarized in its March 2013 report, “The Business Case for Green Building,” and show, once and for all, that there is a direct link between the design of a building and the productivity of its occupants. WorldGBC also wants to establish a set of universal guidelines for improving the sustainability of office buildings, and to quantify the financial value of each green benefit.WorldGBC’s 2013 report addresses the “perception gap” that exists between the actual and estimated costs of building green. Based on the current data, most green buildings cost -0.4% to 12.5% more to build than conventional buildings. However, industry professionals who have little experience with green design believe that it will cost 0.9% to 20.0% more. As a result, they are reluctant to put forth the capital.

In an effort to alter these misguided perceptions, WorldGBC has compiled some eye-opening evidence. First of all, clients need to realize that “showpiece” green buildings aren’t reflective of actual costs. Such buildings often contain attractive “bolt-on” features that are neither integrated into the design nor financially feasible. WorldGBC encourages clients to understand the need for honest planning, integration, and efficiency as opposed to showing off the latest and greatest idea in sustainability. This understanding will help them make reasonable estimates in terms of construction and design costs. In addition, actual costs will eventually decrease as industry professionals develop better skills, manufacturers produce more green building supplies, and building codes become stricter.

Concerning asset value, the evidence suggests that green buildings provide higher sales prices, lower operating expenses, higher occupancy rates, and lower exit yields. This means that developers don’t have to pay as much to build green while selling their buildings more quickly and at a higher price. Owners don’t have to worry about the building depreciating in value or the tenants frequently leaving. The occupants themselves will be healthier, safer, and more productive, while not spending as much money to maintain and live in the building. All three parties benefit from the building’s lower refurbishment costs, lower transaction fees, higher energy standards, and more inviting image.

While the initial cost of building green remains high, the resultant energy and refurbishment savings offset the original expense. Green buildings can reduce energy consumption by 25% to 50%, depending on the level of certification. These savings can also be achieved by retrofitting conventional buildings with green features. Besides reducing operating costs, green building or retrofitting can increase the life cycle and adaptability of the building’s systems. WorldGBC does caution clients that in order to reach estimated performance goals, they must establish an effective management system before the building is occupied. Management should take the form of building commissioning, green building management (leadership, communication, and collaboration), and tenant awareness programs. Most importantly, studies show that the environment inside a building greatly influences occupants’ productivity.

In LEED-certified buildings, outside views contribute to a 10-25% improvement in mental function and memory, a 6-12% improvement in call-processing speed, and an 8.5% decrease in the length of hospital stays. If given access to daylight, students achieve 5-14% higher test scores and learn 20-26% faster; and workers are 18% more productive, resulting in a 15-40% increase in retail sales. Improved lighting designs can lead to a 23% increase, better ventilation to an 11% increase, and individual temperature control to a 3% increase in productivity. Of course these features must be balanced within the green framework of the entire building, so that all aspects of design work together to benefit the occupants.

In a survey conducted by Deloitte and Charles Lockwood, 100% of respondents who retrofitted their office buildings with green features saw at least a partial increase in goodwill/brand equity. 93% were able to attract more talent, while 81% were better able to retain talent. 87% saw an increase in workforce productivity; the same for employee comfort and for employee well-being. 75% noticed improvement in employee health, and 73% said they were able to reduce costs.

In the face of these numbers, business owners, developers, and investors will be hard-pressed to find a reason not to at least retrofit their buildings in a sustainable way. Not only will they be caring for the environment and for their employees, but they will be looking after their own wallets. And saving money is something we all can agree on.

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