Everyone’s talking about “going green,” but the cost of the investment up to now has been difficult to justify. Energy savings aside, what are the financial benefits of using environmentally sustainable materials and technology in construction? Haas Professor John Quigley now offers 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 co-authors Piet Eichholtz and Nils Kok of Maastricht University, Netherlands, determined investments in proven green building practices lead to sizable increases in a property’s market value and effective rent, 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, Quigley replied, “To see if this was hype or real.” While Quigley’s work concludes 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 Environmental Protection Agency, EPA.
The research focused solely on commercial property. It first identified 694 buildings, green certified by the federal government’s Energy Star program or the private LEED (Leadership in Energy and Environmental Design) standard. The control group consisted of nearly 7,500 other office buildings within a quarter-mile of the certified buildings.
Quigley, the I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy, was surprised at the results. “If I was an owner of commercial property, I would investigate the cost of attaining an Energy Star rating. If that is at all a reasonable investment, I would think about doing it," he says.
His research offers quantitative evidence for builders and investors who value the social responsibility factors of green buildings but, up to now, lacked data about the financial performance of these investments. “Finding there is a linkage between energy and profitability of rental properties is potentially significant and leads to more extensive uses of this information," says Quigley, also director of the Berkeley Program for Housing and the Urban Economy
In July, Quigley will be attending a conference in Istanbul, Turkey, to extend his study of the economic effects of green building to Europe and the Middle East. The complete document, “Doing Well by Doing Good? Green Office Buildings,” will be available in fall 2008.