Market Intelligence

Green & Sustainable Construction

Commercial Real Estate and Green Construction

The commercial real estate industry is the latest segment to embrace the green movement. The various “green” rating systems have raised awareness of resource usage and provided a road map and recognition for reduced consumption, with the USGBC LEED program gaining the greatest acceptance. Adopters of, and attitudes toward, sustainable construction have been evolving. Rating systems provide benchmarks for comparing buildings and heighten our focus on the resources required to construct and operate them. The earliest adopters of LEED or sustainable development were the government and institutions, such as universities and hospitals. These owners have a long-term investment in their buildings, often occupying them until they are so obsolete that it is no longer technically feasible to remodel them. The next tier of adopters was corporate owners. They built corporate headquarters designed to be showcase buildings with the latest sustainable technologies. High profile commercial organizations such as Walmart, Goldman Sachs, Macy’s, and Wachovia, have shown that it is good business to build green.

While the green movement is beginning to age, there are still some growing pains. The design community is working with increasingly educated buyers, some with reasonable expectations, and others wanting to push the envelope for sustainability. The green movement has spurred numerous new technologies, resulting in design changes and new methodologies. The commercial real estate industry is continually monitoring these changes and their impact on the bottom line. As a result of new technologies employed and familiar technologies applied in new ways, additional risk is being placed on the developer by owners requesting avant-garde design, and the design community is under greater risk, designing to enhanced requirements. This can result in increased design fees. A recent survey of design fees indicated that there is a 3% design fee increase. This increase is attributable to the additional time required to design to enhanced operating performance, and the associated risk. As green design becomes more commonplace, that differential will decrease. Some organizations, experienced in green design, would argue that a differential no longer exists.

The design changes may be the result of an altruistic desire for sustainable construction or a response to meeting the requirements rating system such as LEED, Green Globes, or Energy Star. The numerous reasons for building green are included in the analysis that real estate professionals prepare before initiating a project. Just as ordinary citizens are concerned about the environment, real estate investors are searching for socially conscious investment vehicles. Green building REITs (Real Estate Investment Trusts) and investment funds have been established to address these needs. Due to heightened demand and funding sources, the commercial real estate industry has begun to embrace green construction. In fact, the momentum is such that Class A office space will soon be defined with a green requirement. Interest in sustainable development by the commercial real estate organization is based upon many factors, ranging from altruistic to financial, with the emphasis on financial.

Exerpted from Green Building: Project Planning & Cost Estimating, available through RSMeans.


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