Green Building Certifications: Boosting Value in Commercial Real Estate
Green Building Certifications: Boosting Value in Commercial Real Estate
A Comprehensive Guide to Understanding Green Certifications for Real Estate Investors
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Today's newsletter will explore the most widely used Green Building Certifications and their growing influence on the Commercial Real Estate (CRE) sector.
Occupiers now demand that buildings meet Green Building Certification standards as a basic requirement. Top tenants in prime markets want properties that are leading the race in sustainability.
Green Certification has become a cornerstone of sustainable real estate. To meet Net Zero targets, buildings must embrace advanced solutions, including:
Use of renewable materials.
Creating spaces that nurture health and wellbeing.
How to positively impact communities and society at large.
This newsletter will cover:
Green Premium
LEED
BREEAM
WELL
Other Certifications
Now, let’s dive in.
1. The Green Premium: Why Certified Buildings Command Higher Prices
The Green Premium in CRE refers to the higher rent and sale prices for buildings with Green Certifications, such as LEED or BREEAM. These certifications signal lower environmental impact, enhanced financial performance, and an increasing preference for sustainable investments.
Key Data on the Green Premium in Commercial Real Estate
Price Premium: In New York, green-certified office buildings command a 28% higher price per square foot. In London, the premium is 19%.
Certification Impact: BREEAM-certified properties often see sale prices 25% higher than non-certified counterparts.
Developer Insights: Developers report as much as 30% higher sales for certified buildings versus non-certified ones.
Value Retention: About 38% of surveyed property owners believe that certifications help with value retention.
Global Context: By June 2023, 149 countries had announced net-zero targets, covering 88% of global emissions, underlining the importance of sustainable real estate in climate action.
This data illustrates the financial viability of investing in green-certified properties, highlighting their growing importance in the real estate market.
2. LEED Certification: The Global Benchmark for Sustainability
LEED (Leadership in Energy and Environmental Design) certification is recognized globally for its rigorous sustainability standards. It is essential for organizations aiming to reduce environmental impact, enhance occupant health, and achieve operational savings. LEED-certified buildings showcase energy efficiency, reduced water usage, and improved indoor air quality, making them attractive to tenants and investors alike.
Established in 1993 by the U.S. Green Building Council, LEED certification is now held by over 197,000 buildings in 186 countries.
LEED uses a points-based system to evaluate categories like:
energy efficiency
water conservation
sustainable site development
material recycled content
Buildings can earn different levels of certification: Certified, Silver, Gold or Platinum.
In Europe, LEED is becoming increasingly common, with Milan standing out as a major market where most recent Commercial Real Estate projects have LEED certification.
3. BREEAM: The UK’s Leading Sustainability Certification
BREEAM (Building Research Establishment Environmental Assessment Method) is one of the oldest sustainability assessment methods. It originated in the UK in 1990 and has been an industry benchmark for many other assessment methods (e.g. LEED). It represents the Gold standard sustainability certification in the UK market.
The journey of BREEAM began with the aim of creating a comprehensive framework for assessing the environmental performance of buildings.
It evaluates projects across several criteria, including:
Energy use.
Health and well-being.
Pollution.
Each project is awarded a score that determines its rating: Pass, Good, Very Good, Excellent, or Outstanding.
Buildings aiming to be best-in-class now aim to achieve a BREEAM Outstanding rating.
Recent buildings built in London that are top rated are: 100 Liverpool Street and Bloomberg Place
4. WELL Certification: Prioritizing Health and Well-being in CRE
WELL certification focuses on enhancing the health and well-being of building occupants, making it increasingly important in today’s health-conscious environment. Today organisations recognise the positive link between employee well-being and productivity. WELL-certified buildings offer a framework for creating healthier indoor spaces through design and operational strategies.
Launched in 2014 by the International WELL Building Institute (IWBI), WELL certification is now expected by top occupiers.
It assesses buildings based on various criteria, including:
air quality.
water quality.
lighting.
fitness opportunities.
WELL certification involves rigorous testing and occupant feedback to ensure top health standards. These buildings improve employee satisfaction and retention, while enhancing corporate image. This focus on well-being aligns with the growing demand for healthier work environments, making WELL certification a valuable asset for modern businesses. As companies increasingly invest in employee wellness, WELL certification stands out as a powerful tool for fostering a culture of health and productivity.
5. Emerging Certifications to Watch in Real Estate Sustainability
In addition to LEED, BREEAM, and WELL, several other certifications are making significant impacts in the realm of sustainable building.
Green Star: Created in Australia, this rating system assesses the sustainability of buildings and communities. It promotes environmentally responsible practices and is widely recognized in the region.
Fitwel: This up-and-coming certification focuses on promoting health and well-being by encouraging physical activity, healthy eating, and overall wellness within the built environment. It's gaining traction as companies prioritize healthier workspaces.
Energy Star: Administered by the U.S. Environmental Protection Agency (EPA), Energy Star focuses on energy efficiency. Buildings that achieve this certification are recognized for their high energy performance, leading to cost savings and a smaller carbon footprint.
Conclusion
The divide between green-certified and non-certified buildings will only grow larger. With many office buildings becoming obsolete, Green Certifications offer a way to support adaptive reuse and extend the life of these assets. Green buildings are known to boost profitability, enhance asset value, and play a crucial role in decarbonizing the real estate industry.
Key Takeaways:
Green-certified buildings consistently fetch higher prices.
LEED remains the top certification in the U.S. and is widely adopted across Europe.
BREEAM set the foundation for many of today’s sustainability standards.
The WELL Standard has become a must-have for occupiers focused on health and well-being.
That’s all for today.
See you next week.
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