Why Green Building Certifications Increase Long Term Asset Value
In today’s real estate industry, sustainability and eco-friendliness have become major considerations for investors, developers, and tenants alike. This shift towards environmentally responsible practices has sparked a rising interest in green building certifications, such as LEED, WELL, and BREEAM. These certifications not only demonstrate a commitment to sustainability but also have a significant impact on the long-term asset value of a building. In this article, we will explore the reasons why green building certifications have become increasingly important in the real estate market and how they can increase the long-term value of a property.
What are Green Building Certifications?
Green building certifications are third-party verification systems that assess the sustainability aspects of a building. These certifications evaluate a building’s design, construction, and ongoing operations, considering various environmental criteria such as energy efficiency, water usage, indoor air quality, and materials used. Commonly used certifications include Leadership in Energy and Environmental Design (LEED), WELL Building Standard, and Building Research Establishment Environmental Assessment Method (BREEAM).
The Rising Popularity of Green Building Certifications
In recent years, there has been a growing awareness and concern for the environment, leading to an increased demand for sustainable buildings. According to the World Green Building Trends 2018 report, the adoption of green building certifications is expected to double in the next few years, with nearly 50% of construction professionals reporting that the majority of their projects will be green by 2021. This trend reflects the growing desire for environmentally responsible buildings, driven by factors such as government regulations, cost savings, and consumer preferences.
How Green Building Certifications Increase Long-Term Asset Value
1. Higher Market Value
One of the most significant benefits of green building certifications is the increase in market value. A study by McGraw Hill Construction found that certified green buildings have a 10% higher market value compared to their non-certified counterparts. This premium is attributed to the numerous economic, social, and environmental benefits of sustainable buildings, such as reduced operating costs, improved employee productivity, and lower environmental impact.
2. Reduced Operating Costs
Green building certifications require compliance with energy-efficient and sustainable practices, resulting in lower operational costs for the building. LEED-certified buildings, for example, have been reported to use up to 25% less energy and save up to 50% on water usage compared to conventional buildings. These cost savings can have a significant impact on a building’s long-term value, as they can result in higher net operating income (NOI) and increased cash flow.
3. Improved Tenant Satisfaction and Retention
Tenants are increasingly becoming more aware of the impact their surroundings have on their health and well-being. As a result, there is a growing demand for sustainable buildings that offer amenities that promote occupant health and comfort. Green building certifications, such as WELL, have specific requirements for indoor air quality, natural lighting, and access to outdoor spaces. By meeting these criteria, certified buildings can offer a healthier and more comfortable environment for tenants, resulting in higher tenant satisfaction and improved retention rates.
4. Future-Proofing Against Regulatory Changes
With the increasing focus on sustainability and combating climate change, it is inevitable that there will be stricter regulations on buildings’ environmental footprint in the future. Green building certifications, such as LEED, are already well-aligned with many of these regulations, making certified buildings more prepared for any future regulatory changes. This future-proofing can ensure that a building remains competitive and attractive to potential investors and tenants, even as regulations become more stringent.
Conclusion
Green building certifications are no longer just a trend but have become a crucial factor in the real estate industry. These certifications not only demonstrate a commitment to sustainability, but also have a significant impact on the long-term value of a building. From higher market value and reduced operating costs to improved tenant satisfaction and future-proofing against regulatory changes, green building certifications are a sound investment that can bring numerous benefits to both the building owner and its occupants.
