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An Introduction to the Cost Benefits of Green Buildings

Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment. Additional questions welcomed to tips@curbed.com. Today's topic: the cost benefits of green buildings!

Last week, Curbed U explored the world of green buildings, but we only briefly touched on the financial benefits. Rick Cook, of the eco-minded firm COOKFOX, told us that building green costs only fractionally more than not building green, and today we're diving into a report that supports this statement. Recently published by the World Green Building Council, The Business Case for Green Building details the cost benefits of structures built to sustainable standards like LEED and Energy Star. The report compiles research from a multitude of studies to look at the lifecycle of a building and examine the financial benefits that a green building has for all of the stakeholders: designers, developers, owners, and occupants. It's a comprehensive, 124-page report (PDF), and we pulled out a few of the most compelling points.

[Graphic from the WGBC study]

Green Buildings Do Not Need to Cost More Than Non-Green Buildings
Sustainable building practices are becoming more mainstream, but there is still the assumption that using green methods costs more than traditional methods. But this is not the case if green methods are incorporated from the start. Various studies completed between 2000 to 2012 (p. 22) show that actual cost premiums range from zero to 12.5 percent, with the higher premiums directly correlating with a higher standard of green, like zero carbon performance. A 2007 study found that "an increasing number of project teams were shown to have delivered LEED-certified buildings within a budget comparable to that of non-LEED-certified buildings. One of the biggest challenges to the cost-effective delivery of green buildings is the development of an understanding that green design is not a bolt-on to conventional buildings, but is instead an integrated discipline for design that requires a different way of thinking." If you recall, this corresponds with what Cook said: a developer's decision to build green doesn't necessarily hinge on whether or not it's going to cost more. It's more about a person's attitude.

[Reported cost premiums associated with LEED certification in the United States showing the gradual reduction of premiums over time, averaged values from various source]

It's Getting Cheaper to Build Green
The chart above shows the gradual decrease in the cost of LEED buildings from 2001 to 2011. This should come as no surprise?practice makes perfect. So as the industry is becoming more familiar with green buildings, the system for delivering them has improved and supply chains are more capable of efficiently providing sustainable materials. All of these factors help to bring down costs. The report also points out that more construction and design professionals know how to create green buildings, and the tools to learn about sustainable building are more readily available.

[Reported rental rate increases of certified green buildings as compared to conventional code-compliant unrated office buildings, from various sources]

Green Buildings Make More Money
Studies show that certified green buildings, both commercial and residential, can command up to 30 percent higher prices than their traditional counterparts (p.30). And the higher the certification of green, the higher the price (which means that the LEED Platinum One Bryant Park is probably one of the more expensive office buildings in Manhattan). The above graphic shows different types of green buildings and the rental rates they fetched over the last several years (BREEAM is the standard used in U.K.). Occupancy rates have also been found to be up to 23 percent higher for LEED buildings.

Because green building research is still limited and cost benefits vary greatly from building to building, it's difficult to attach hard numbers to these findings. With that said, the report quotes (p. 44) one study that found "quite precise capitalizations of energy savings." Said study "relates the exact energy bill of Energy Star buildings to the premiums paid for the buildings and documents that a one-dollar saving in energy costs per square foot (about a 50 percent reduction in costs), leads to an increase of US$0.95 in cash flows and an increase of $13 in asset values."

Where And When You See The Savings
It's common knowledge that a sustainably built building uses less energy than a traditional building, but how much less? For LEED certified buildings, studies (p. 51) found that it can be 25 to 35 percent less, with the rates increasing with the level of green (i.e. a LEED Platinum building is more efficient than a LEED Silver building). Additionally, green buildings that incorporate water-saving strategies (low-flow fixtures, water reclamation sytems, etc.) use up to 39 percent less water than comparable conventional buildings. Owners and tenants will see this translate in gas, electric, and water bills from the start.

Green buildings may cost more upfront, but a 2003 study of 33 LEED projects found that the buildings would yield "savings of over ten times the initial investment" after 20 years. From the report (p. 56): "[The figure above] includes the savings estimated from increases in productivity and health, looking at operational cost saving alone finds that these savings also exceed any cost premiums associated with green building design and construction."

The Less Obvious Financial Benefit: Health and Productivity
Green buildings are, by default, healthier than conventional buildings?they have better air, better light, and better materials. Residents or workers may not realize the affects of these things on a daily basis, but they have a significant impact on a person's physical and mental health. The report lists several different studies (p. 69) that found natural daylight and views of nature to be two of the most important factors for increased productivity and reduced stress levels in employees. Thirteen different studies linked "access to the natural environment through daylight and operable windows to individual (up to an 18 percent increase) and organizational productivity (such as increased retail sales)," while fifteen different studies linked "improved ventilation with up to 11 percent gains in productivity, as a result of increased outside air rates, dedicated delivery of fresh air to the workstation, and reduced levels of pollutants." Basically we should all just go work in Central Park.

The more productive employees are, the more money a company makes, which is a driving factor for many companies to go green. The report points out that energy savings don't really make that much of a difference for companies?about 1 percent of workspace costs are spent on energy, while 85 percent go toward employee salaries and benefits, so it's best to keep that 85 percent healthy and happy.
· The Business Case for Green Buildings [official PDF study]
· An Introduction to the Ecotastic World of Green Buildings [Curbed]
· LEED certification [usgbc.org]
· All Curbed University [Curbed]
All charts are from the WGBC report, The Business Case for Green Buildings