Analysis Shows Green Building Leads to Green Pockets
What are the financial benefits of using environmentally sustainable materials and technology in construction?
Professor John Quigley at the University of California, Berkeley – Haas School of Business is conducting the first systematic analysis of environmentally sustainable construction and its economic impact on the real estate market.
In the working paper, "Doing Well by Doing Good? Green Office Buildings," Quigley and coauthors Piet Eichholtz and Nils Kok of Maastricht University, Netherlands, determined that investments in proven green building practices lead to sizable increases in a property's market value and effective rent, or the average per square foot rent paid. Green certified buildings produced an 8.5 percent increase in effective rent. The additional annual rent for going green amounts to almost $309,000, based on the average size building. Likewise, the incremental value of a green structure is an estimated $5.1 million more than an ordinary building. The study did not calculate the incremental cost of investing in green building practices.
When asked why he decided to research the economic value of green-certified buildings, John Quigley, the I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy, replied, "To see if this was hype or real." While Quigley's work concludes that the resulting profitability is real, he is continuing to research why green commercial buildings produce higher rents and market value by using engineering data from the U.S. Environmental Protection Agency.
The research focuses solely on commercial property. It first identified 694 buildings in a number of major U.S. cities including San Francisco, Boston, Chicago, Atlanta, Dallas, Washington D.C., and Los Angeles. All are green certified by the federal government's Energy Star program or the private Leadership in Energy and Environmental Design standard.
Quigley's paper states, "It is claimed that LEED-certified buildings have lower operating costs and increased asset values …." However, not a single LEED-certified building included in this study produced higher effective rent as a result of its green integrity. In fact, only the Energy Star buildings produced higher rents. The control group consisted of nearly 7,500 other office buildings within a quarter mile of the certified buildings. In many cases, the green buildings were taller, newer, and larger than the control group of buildings but those characteristics were adjusted in statistical models.