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Missing Link Found Between Green Buildings, Green ROI

Missing Link Found Between
Green Buildings, Green ROI

being green may mean higher rent, occupancy, renewals, tenant satisfaction

by CARA ELLIS, with newswire services | Oct 8, 2015

Environmental design advocates have long been searching for that persuasive, golden incentive to build green, and now they may finally have it. 

This fall, Toronto-based real estate giant Bentall Kennedy Group released a study showing a definitive link between increased property performance and green building certification. It appears to be the language that the movers and shakers --and more importantly, their bankers-- can finally understand. The new data means that developers who previously balked at the up front cost of environmentally certified construction may think twice now, given green's promise of greater ROI in the future. 

Published in the September 2015 issue of The Journal of Portfolio Management, the study was conducted by Dr. Nils Kok of Maastricht University in The Netherlands and Dr. Avis Devine of the University of Guelph in Ontario. The research analyzes 10 years of financial performance data across a Bentall Kennedy-managed office portfolio totaling 58 msf, specifically 34 msf in the U.S., and 24 msf in Canada. Overall, the findings represent compelling evidence that buildings with sustainable certification outperform similar non-green buildings in terms of rental rates, occupancy levels, tenant satisfaction scores, and the probability of lease renewals.

"This is the most in-depth and conclusive analysis conducted to date of the link between responsible property investment practice and financial returns," said Bentall Kennedy CEO Gary Whitelaw. "By examining a large North American portfolio with consistent data across multiple market cycles, the results validate Bentall Kennedy's focus on energy and sustainability improvement in buildings not only as a socially responsible strategy, but also as a way to enhance property income for our clients."

Investors want evidence to support the economic merits of investing in sustainable buildings, and this new academic research provides exactly that.
— Giselle Gagnon, SVP, Bentall Kennedy

"Previous studies have suggested similar correlations but none of these looked at in-depth, diverse metrics across a large portfolio for as long as 10 years," said Giselle Gagnon, Senior VP, Strategic Resources Group, Bentall Kennedy. "Investors want evidence to support the economic merits of investing in sustainable buildings, and this new academic research provides exactly that."

Deeper data sets yield compelling evidence

The study (available here) of nearly 300 office properties across North America included lease-level data such as rents, rent concessions and lease renewal rates, as well as building-level information such as occupancy rates, tenant satisfaction scores, energy and water consumption, and green building certifications. Highlights of the findings include:

  • Net effective rents, including the cost of tenant incentives, average 3.7% higher in LEED certified properties in the U.S. than in similar non-certified buildings;
  • Rent concessions, for LEED and BOMA BESt buildings in Canada are on average 4% lower than in similar non-certified buildings;
  • Occupancy rates during the period were 18.7% higher in Canadian buildings having both LEED and BOMA BESt certification, and 9.5% higher in U.S. buildings with ENERGY STAR certification, than in buildings without certifications;
  • Tenant renewal rates were 5.6% higher in Canadian buildings with BOMA BESt Level 3 certification than in buildings with no BOMA BESt certification;
  • Tenant satisfaction scores were 7% higher in Canadian buildings with BOMA BESt Level 3 and 4 certification than in non-certified buildings;
  • Energy consumption per square foot was 14% lower in U.S. LEED certified properties than in buildings without certification.

"This study is an important step toward mapping the business case for sustainable building attributes," Dr. Devine said. "The study advances knowledge in this field significantly as a result of Bentall Kennedy's commitment to share a deep pool of consistent, detailed data on a large group of buildings over a long period of time."

For more, contact Shaun Little at slittle@bentallkennedy.com or visit www.bentallkennedy.com.

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