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 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 percent growth in cumulative LEED (Leadership in Energy and Environmental Design) registered and certified projects, on top of more than 50 percent cumulative growth in 2006. Essentially, the cumulative number of registered and certified projects has increased 250 percent since the end of 2005.

Why? The American public finally is 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 20 business and industry groups the past year.

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.

It’s about the people, stupid – Corporate America is desperate for good people. The Generation 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.

Increasing property values – Look no further than a study released last 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 percent greater occupancy and a $2 per square foot greater rents. To top that, in 2006, Energy Star buildings sold at a 30 percent 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.

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 also is growing, as one jurisdiction after another makes a commitment to LEED-certify all future public buildings.

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, because 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 mitigates the economic risk of return on investment for building owners.

The media is all over it – Just sign up for Internet alerts; put in “green buildings” as a search term – you will get up to 10 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.

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, and 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.

There’s no longer a cost premium – All of the above business case items certainly have stimulated demand for green buildings, but many businesspeople think that the major barrier still is a significantly higher initial cost. A 2007 study by the World Business Council for Sustainable Development showed that businesspeople still believe green building practices carry a 10 percent or greater cost premium. This year, however, 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.

Gaining momentum – 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, last August, Best Buy announced that all future stores would be LEED-certified. Then in November, Regency Centers, a major public shopping-center developer, announced that 60 percent of all new centers in 2010 would be LEED-certified – and there’s not even a LEED rating system yet for shopping centers.

Green Building By the Numbers

  • The value of green building construction starts exceeds $12 billion in 2008, and is projected to increase to $60 billion by 2010 (Source: McGraw-Hill Construction Analytics, SmartMarket Trends Report 2008).

  • The construction market accounts for 14.2 percent of the $10 trillion U.S. gross domestic product (Source: 2006 DOE Buildings Energy Databook).

  • By 2010, approximately 10 percent of commercial construction starts are expected to be green (Source: McGraw Hill Green Building Smart Market Report 2006).

  • Since 2000, the U.S. Green Building Council’s membership has increased tenfold.

  • Every business day, $464 million worth of construction registers with the Leadership and Energy and Environmental Design (LEED) program.

  • Buildings represent 39 percent of U.S. primary energy use, and 70 percent of electricity consumption (Source: U.S. Department of Energy).

  • Buildings use 12.2 percent of all potable water, or 15 trillion gallons per year (Source: U.S. Geological Service).

  • Building sectors (and expected green building growth, according to McGraw Hill Construction):

    Education (64%)
    Government (62%)
    Institutional (53%)
    Office (49%)
    Healthcare (45%)
    Hospitality (21%)
    Retail (20%)