By Steven J. Schleider, MAI, LEED-AP BD + C,
President, Metropolitan Valuation Services
For years – approximately 15 since LEED certifications were introduced – much of the motivation for going green or adopting sustainability best practices has focused on cost savings from energy, water and other forms of conservation. The cost savings are real and valid and can add significantly to property value that is being appraised for acquisition or financing.
But appraisal, while a science, is also an art. Appraisers see buildings not only as bricks and mortar, glass and steel, but as activity hubs for tenants, visitors and employees. Buildings house people and the people who work, play, learn or reside within are also determinants of a building’s value.
It is not news that tenants prefer green buildings. What company wouldn’t prefer healthier, environmentally-friendly spaces with non-glare LED lighting, natural light, green spaces, recycling, water and other forms of conservation that enhance wellness and productivity? But the big question is: are tenants willing to pay the tariff for renting in a green building?
For a long while, green was rarely a crucial influence in a rental decision, location and cost being the ever-present decision-making factors. The early reality was that green buildings were expensive, time consuming, more difficult to build and often very technical. But times have changed.
Where once aesthetically pleasing green architecture was considered an oxymoron, today architects, engineers and constructors have embraced and become adept at green building.
Where once recycled green products were eco-ugly, cheap and unpleasant, today’s green products have increased in supply (recycled tire mats can be found in every big box store), decreased in cost and become eco-chic (take a look at the Coke, olive oil and pickle jar recycled glass countertops on Pinterest).
Earlier this month, the U.S. Green Building Council (USGBC) released the results of a survey, LEED and the Corporate Built Environment, that queried Fortune 200 companies and showed:
- 82 percent of survey respondents are likely to continue using LEED over the next three years for new construction or retrofit projects;
- 60 percent of surveyed companies believe LEED positively impacts their return on investment (ROI);
- 70 percent stated they pursue LEED as a means to save money by being more energy efficient;
- 80 percent agree that LEED is a key way their company communicates sustainability efforts to stakeholders.
The above may be the case for large corporations, but what of the much more numerous and smaller public, privately-held companies and not for profit tenants? For that answer, another recently released study by DTZ (a full-service global leader in commercial property services) “shows that occupants in green certified buildings tend to be more satisfied than those in conventional buildings.” The study also founded that the greater the number of certifications a building has, the higher the level of tenant satisfaction, especially when green practices lower costs and improve services.
One of the challenges for an appraiser is to incorporate the growing desirability of tenanting in green buildings in tandem with the “soft” value of tenant happiness – elusive variables that can be neither easily understood nor easily measureable. One important stride for appraising green buildings is that the more there are, the greater the number of comparables.
Have we reached a point of a meeting of the minds between property owners and tenants where owners are convinced of the economic benefits of green practices concurrently with tenants who want to generate their own benefits of greater productivity, increased employee wellness and retention?
Certainly we have momentum in the marketplace. Tenant retention and faster absorption may always be determined by location and price. But huge strides in certifications becoming mainstream and better understanding of the many advantages of owning and/or occupying a green building means high-performance buildings are increasingly entering into tenant decisions and may well become the third important deal maker – or breaker – in commercial property leasing decisions.
