“The industry is doubling down on its efforts to move from
doing less harm to having a positive impact,” Fanning says. “We
continue to see the threat that climate change and resource scar-
city have and as a result legislation and corporations are stepping
up to the challenge to ensure our real estate is more efficient and
This sounds good. But is it really true? Are CRE tenants, large
investors and cities and states coming together to make our build-
ings more efficient and, in the process, save the world?
If the numbers pencil out, maybe so.
THE TENANT TEST
While there is momentum behind sustainable, healthy buildings,there is still a way to go. The main reason: the numbers still makelittle sense in a lot of places.
“Green buildings started when there was demand for green
space from tenants,” says Spencer Levy, chairman of Americas
Research for CBRE. “Buildings started being green in office and
secondarily in multifamily. But other asset classes are, generally
speaking, laggards. That is because until you see the financial
incentive to convert or to build your building green from its incep-
tion, it doesn’t make sense to do it.”
For the entire CRE sector to go green, customers need to
“Despite the fact that we are seeing a more environmentally
conscious Gen Z and Millennials, we’re still not seeing the demand
for that green space and its additional cost,” Levy says. “Because of
that, investors are not demanding it in those sectors.”
Price sensitivity isn’t a phenomenon among younger renters,
though. “You’re still in the low single digits [percentage of green
apartments] in most markets, even though most new class A multi-
family is being built green,” Levy says. “The reason for that is
you’re not seeing older tenants in older buildings demanding
conversion of their units.”
That feeling isn’t universal though, especially in the renter-by-
choice segment of the apartment market. “Especially in the multi-
family sector, people are starting to demand it [sustainability] as
they are shopping around for an apartment,” says Megan Baker,
senior director of engagement for the Green Building Initiative.
“They want a place where they’re taking care of the environment,
their bills go down when they’re paying for their own utilities and
they have a healthy space.”
A challenge with sustainability is that it has different meanings
to different residents and not everything is visible. Explaining the
approach is important to help residents understand the property’s
offerings. “Not everything that we provide is necessarily something
that is tangible, like improved indoor air quality,” Hatcher says.
“But some things, like recycling or a community garden, resident’s
value and can participate in.”
Sometimes, people who aren’t interested in wellness or sustain-
ability, can be brought along with a quality green offering. If a
feature encourages more productivity in the office environment,
tenants may decide to pay a premium. Gutter puts circadian light-
ing, which aims to minimize the effect of electric light on the
human circadian rhythm, in that category.
“With circadian lighting, you actually could help your employees get a better night’s sleep when they go home and show uprefreshed,” Gutter says. “I think employers have realized that theycan align those amenities that the millennials they’re trying toattract are most interested in with their desire to have improvedperformance, improved retention, improve recruitment and all ofthese things.”
DRIVERS OF SUSTAINABILITY
While many tenants may still have sticker shock when they have topay for sustainable features, the investment class, in theory, is further along.
Levy says socially conscious funds are not a major player in thereal estate space. But that could soon change. “I think that you will
For neophyte in green building, the certification world can be confusing.
Understanding the ecosystem starts with Leadership in Energy andEnvironmental Design, which was developed by the U.S. Green BuildingCouncil. It includes rating systems for the design, construction, operation andmaintenance of green buildings, homes and neighborhoods.
If you want a more stringent version of LEED, you could try the LivingBuilding Challenge. The National Green Building Standard and the Green Globeare also alternatives to LEED.
The Green Building Initiative is a Denver-based non-profit that administers
the Green Globe certification for commercial and multifamily buildings. “It’s
really for the entire building,” says Megan Baker, senior director of engage-
ment for the Green Building Initiative. “It’s flexible and adaptable for various
Baker says the ANSI-certified Green Globe, which uses a third-party asses-
sor, doesn’t penalize buildings for not having a green feature, such as a cool-
ing tower, if it’s not applicable to the project. It has a new construction pro-
gram, a sustainable interiors program and an existing buildings program.
Energy Star from the U.S. Environmental Protection Agency provides information about the energy consumption of products and devices. While it hasbecome harder to attain the certification, there are several financial benefits,including lower operating costs, higher rental rates, better financing terms,lower occupancy and higher asset values.
“EPA periodically updates this metric to reflect the most recent marketdata available. The latest data show an overall improvement in the energyperformance of the U.S. building stock in recent years,” says Lauren Hodges,director of communications for Energy Star for Commercial Buildings &Industrial Plants.
The Passive House Institute US offers the Passive Building Standard. Apassive home uses continuous insulation throughout its entire envelope, anextremely airtight building envelope, high performance windows, some formof a balanced heat- and moisture-recovery ventilation and a minimal spaceconditioning system.
The International WELL Building Institute offers the WELL BuildingStandard, which focuses only on how buildings, and everything in them, canimprove our comfort, drive better choices, and generally enhance, not compromise, our health and wellness. The certification was inspired by LEED,according to IWBI President Rachel Gutter.
“It is a certification framework that historically has been applied to indi-
vidual buildings and communities,” Gutter says. “In the past year we brought
a new program out of pilot called portfolio that actually takes an organization-
wide approach to human health.”
In the triple bottom line—people, planet and prosperity—Gutter says the
well building movement puts humans first. “Whereas green building might focus
on water efficiency, we’re focused on water quality,” she says.
Gutter says a majority of the projects that achieved WELL certificationalso pursued a dual certification under a green building framework. “Tomake that easier on our shared customers, we’ve created a variety of toolsand other incentives.”