Green Value - Executive Summary

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  • 1. GREEN VALUE Green buildings, growing assets A major collaboration into the study of building value by building green
  • 3. GREEN VALUE EXAMPLES Rick Nevin and Gregory Watson found that people pay $10-$20 more for a home for every $1 reduction in annual fuel bills. The Heschong Mahone Group found that ‘adding skylighting to the average non-skylit retail store would be likely to improve its performance by 40%’. Pennsylvania Power and Light noted a conversion's electricity savings amounted to a payback in 4.1 years with a 24% return on investment. However benefits from lower absenteeism and higher productivity meant a simple payback of just 69 days, a 540% return on investment. At Wal-Mart’s Lawrence, Kansas, ‘Eco-Mart’ skylights were installed to reduce lighting costs. Employees asked to be moved to the daylit part because sales were higher there. Reno Post Office was renovated. The improved productivity gains paid for the entire renovation of $500,000 in less than a year. The annual savings in energy use and maintenance were a 'free bonus'. Hyde Tools found that new lighting enabled workers to improve quality control by the equivalent of $25,000 a year. Every dollar saved was thus worth $10 in improved sales: the retrofit was worth $250,000 extra sales annually. CABE's The Value of Good Design quotes a 21% improvement in hospital discharge rate from a hospital renovation, effectively reducing total costs by 21%. It improved care quality, speed, satisfaction and had spin-off benefits of lower drug use, reduced return visits and other factors.
  • 4. WHY GREEN VALUE MATTERS Buildings have a profound impact on the It’s my hope that this report spurs quality of our lives and the world around discussion on what our future sustainable us. They can enrich our communities, communities should look like, and how health and well being, as well as support we can get there. and enable business. They are a visible Hon. Barry Penner stamp of our culture on the environment. Minister of Environment Environmental sustainability matters Province of British Columbia, Canada to British Columbia. As an example, in 2010, we are hosting the world's first sustainable Winter Olympics and we plan to encourage sustainable green building practices, all based on strong business principles. Green Value is part of the journey towards sustainability. It looks at the financial value of green buildings and how they contribute to a sustainable community, balancing economics with the environment. 01
  • 5. SIXTY SECOND SUMMARY This study, which looked at buildings in North America and the UK, shows What is a Green building that a clear link is beginning to emerge For the purposes of this study, green buildings are those that use resources between the market value of a building efficiently, reduce waste and provide superior indoor air and other qualities. and its green features. What is Green Value? Not only are green buildings good Green Value is the net additional value obtainable by a green building in the market. for the environment, provide healthier places to live and more productive places to work, they can command The study concludes that green buildings can achieve greater value than their higher rents and prices, attract tenants conventional equivalents. But further, it found that the green building industry and others more quickly, reduce tenant turnover may be failing to get the message across that the main beneficiaries are occupants. and cost less to operate and maintain. But because comparatively few green For example because they are easy to measure, a lot of attention has been focused buildings have been built, further work on energy savings. However, these are usually less than 1% of business operating costs. will be needed to quantify more By comparison, total annual real estate expenses are usually around 10% of such costs precisely the extent of the benefit. whilst staff costs can be as high as 85%. This means that the biggest return on Additional study is needed on the investment should arise when green buildings improve business productivity. effect of green building rating systems Instances were found of green features improving productivity, but neither on market value and the extent to owners, developers, appraisers, nor the green building sector, fully value or communicate which the benefits of green buildings this advantage. are shared between the occupier and the owner. Both the real estate and green sectors would benefit from reviewing their focus and working more closely together. While the benefits to asset value are compelling, they are minor compared with the benefit to business. This benefit needs to be properly valued and communicated. Then all can benefit from building green. 02
  • 6. WHY GREEN VALUE? With buildings being such a large Central to this is valuation and the consumer of resources including 40% appraiser, who has to understand Green Value reviewed over 300 technical papers, books, articles, news releases and of energy resources and a significant whether green buildings add value; yet other media items with indexed links to sustainability and value, and undertook case source of pollution, the green building the real estate and financial sectors have studies for the following buildings: movement has set about changing the not been widely engaged and the evidence • Green on the Grand, Kitchener, Ontario, Canada (office) way we think. proving Green Value has been limited. In • SAS Building, Toronto, Ontario, Canada (office) this context, appraisers, developers and Early exponents of green building • 260 Townsend, San Francisco, California, USA (office) owners are sceptical and reluctant to developments piloted new concepts change habits. • Ottawa Paramedic Services, Ottawa, Ontario, Canada (office) but they sometimes proved expensive. Other early adopters and advocates However, if Green Value exists, then • Vancouver Island Technology Park, Victoria, BC, Canada (office) lacked the financial background to this will eventually force market change, • Phillips Eco-Enterprise Centre, Minneapolis, Minnesota, USA (office/industrial) prove the value of going green. Too often as competition will gradually make • Mountain Equipment Co-op, Montreal, Quebec, Canada (retail) they tended to view green buildings traditional buildings uncompetitive. The • Oberlin College, Oberlin, Ohio, USA (educational) primarily as a technical innovation stakes are high because this will impact issue, but if green buildings are to on existing assets that aren’t green. • CK Choi Building and Liu Centre, Vancouver, BC, Canada (educational) become mainstream, they have to be • Cranberry Commons, New Westminster, BC, Canada (residential) Against this background this report financially viable. • The Solaire, New York City, New York, USA (residential) has sought by means of a literature Owners' and developers' prime review and case study assessment to • Conventional Housing Development, Wolverhampton, UK Midlands (residential) motivation is usually profit and they address the hypothesis: “There is no • 'EcoHomes' Scheme, Wolverhampton, UK Midlands (residential) tend to view buildings as financial relationship between the market value of • Conventional Housing Development, Milton Keynes, UK ventures which have to provide a return. a real estate asset and its green features Southern Region (residential) They generally borrow to finance their and related performance”. buildings and lenders want to know • 'EcoHomes' Scheme, Milton Keynes, UK Southern Region (residential) The case studies involved a qualitative that loans are viable and secure. • Conventional Housing Development, Warrington, UK Northern Region (residential) assessment of the impact on the value However, although they may generate • 'EcoHomes' Scheme, Warrington, UK Northern Region (residential). of green buildings in the USA, Canada greater value in the longer run, green and the UK, selected to provide a range buildings can cost more up front, of locations, building types and uses. pressuring perceived viability. Interviews were conducted with building developers, owners and occupants focussing on value benefits of their green buildings compared with comparable conventional buildings and translating the benefits in terms of valuation. 03
  • 7. FINDINGS The Green Value study findings are The study confirms that the main value • Appraisal guidance and standards Green buildings can: summarised here and detailed in a report is to the occupier and business, in health could be improved to cover green • Be quicker to secure tenants and technical appendix available on and productivity. However, contrary to buildings features and related • Command higher rents or prices some claims, this doesn’t necessarily performance more specifically • Enjoy lower tenant turnover translate into higher asset value. • Leasing contracts should be changed to The key focus of the study was value, • Cost less to operate and maintain expressed in a way the real estate and The scale of productivity and health encourage tenants to reduce operating in most cases financial sectors understand it. The report benefit is potentially enormous, and may costs and so contribute to ongoing found that green features and their related exceed the value of all real estate green building performance • Attract grants, subsidies and other inducements to do with performance can provide extra loan expenditures (not just energy, operations • The integrated design process, a team- environmental stewardship, security, additional income, higher rent, and maintenance but other costs such based approach for achieving green increasing energy efficiency and shorter absorption or sales duration, lower as rent/mortgage as well). If developers, benefits without high cost, could be lessening greenhouse gas emissions tenant churn or turnover, better rental owners and valuers can understand how to broadened to include valuers/appraisers stability, higher occupancy rates and tap this benefit, the commercial advantage to help ensure that value is a • Improve business productivity reduced tenant inducements. In time that they would gain would become the consideration in building design, and for occupants, affecting churn, these advantages can be expected to most significant aspect of Green Value. that appraisals properly reflect the renewals, inducements and fitting enhance investment returns although the attributes of green buildings out costs amongst others The study’s literature review found evidence about the impact on asset value • Building codes and other regulations • Benefit occupants to an limited valuation evidence for the link is limited at present. Longer building life are holding back Green Value. They extent that may even exceed the between green building features and may in time also improve investment should be reviewed and changed underlying asset’s value. related performance. A range of factors yields for green buildings. account for this and the study concludes: • Communication of Green Value to Most of the claims of the green building occupiers must improve. This should • Work is needed by the real estate, movement seem to be valid, including focus on personalising the benefit of financial, appraisal and green building longer lifecycles, reduced non-renewable green buildings to occupiers, tenants, sectors to improve how green building materials use, reduced energy real estate agents, valuers and value is appraised. Independent consumption, and smaller ‘environmental appraisers assessment and communication of the footprint'. However green advocates’ • Accounting standards should move value is desirable claims of ‘increased value’ can sometimes to market valuation methods, currently be misleading because cost savings are • Valuers and appraisers need better advocated by many Accounting often directly equated to improvements in impartial evidence of the value Standards Boards. Cost approaches do value despite the fact that the savings do generated by green features and not properly value green features. not always benefit asset value. There is a related performance. Gaining such common misunderstanding of how value evidence would accelerate adoption is determined. of green buildings • Green rating systems need to take fuller account of valuation issues. This is key to demonstrating the value of green buildings 04
  • 8. GREEN OBJECTIVES GREEN STRATEGIES/FEATURES GREEN IMPACT THEORETICAL LINKAGE TO VALUE Sustainable site development • Reduce site disturbance and soil erosion • Improved site aesthetics • Reduced development costs, improved KEY during construction • Greater public support for the development marketability, reduced ongoing maintenance • Use of natural drainage systems (e.g., swales) and accelerated local approval process, hence costs, improved natural appearance, higher * NOI: net lower carrying costs. sales/rents, absorption and re-tenanting, • Preserve or restore natural site features. operating income NOI*/ROI** benefits. • Landscape and orient building to capitalize on • Lower energy costs. • For gross leases, higher NOI. May have ** ROI: return passive heating and cooling. impact for net leases*** if benefit can be on investment demonstrated to tenants. *** Net lease: a lease that Water efficiency • Use captured rainwater for landscaping, • Lower water consumption/costs. • Lower tenant CAM**** charges. Direct NOI requires a leasee to pay all toilet flushing, etc benefit for gross leases, potential for net leases requires communicating benefit to tenants. their operating costs resulting • Treat and re-use greywater, excess groundwater, and steam condensate from their occupation of • Use low-flow fixtures and fittings (pressure- the premises. assisted or composting toilets, waterless urinals, etc.) and ozonation for laundry **** CAM: common area • Use closed-loop systems and other water maintenance reduction technologies for processes Energy efficiency • Use passive solar heating/cooling and • Lower capital costs • Reduced operating costs, longer natural ventilation • Occupant benefits life cycle, lower development costs Note: • Enhance penetration of daylight to interior • Lower energy costs. • Improved occupant productivity, lower churn, To view a larger version of spaces to reduce need for artificial lighting turnover, tenant inducements, etc this table, please go to • Use thermally efficient envelope to reduce • Higher net income for gross leased buildings, perimeter heating and size of HVAC. improved yield. • Use energy management systems, monitoring, • Operational savings (can offset higher • Lower operating costs. On gross leases, and controls to continuously calibrate, adjust, capital costs) higher ROI/NOI. On net leases, potential and maintain energy-related systems. • Reduced capital cost of mechanical for improved ROI/NOI. systems because control systems reduce the need for oversizing. • Use third-party commissioning agent to ensure • Lower operating costs • Marginally higher initial soft costs should be that the installed systems work as designed • Lower maintenance costs. offset by long term operating cost benefits, • Develop O&M manuals and train staff. higher ROI. Indoor environmental quality • Control pollutant sources • Superior indoor air quality, quality lighting • Risk reduction • Use low-emission materials and thermal quality • Greater marketability • Ventilate before occupancy • Fewer occupant complaints • Faster sales and lets • Enhance penetration of daylight and • Higher occupant productivity. • Improved churn/turnover reduce glare • Higher ROI/NOI. • Provide outdoor views • Provide individual occupant controls when possible. Reduced consumption of • Select products for durability • Longer building lifecycle • Lower depreciation typically after higher building materials • Eliminate unnecessary finishes and • Lower maintenance costs. investment costs. other products • Lower construction costs, probable • Reuse building shell from existing buildings lower operating/maintenance costs, higher and fixtures from demolished buildings ROI/NOI. • Use salvaged/refurbished materials • Design for adaptability.
  • 9. For information contact: The Royal Institution RICS Americas of Chartered Surveyors The Chrysler Building 12 Great George Street 405 Lexington Avenue Parliament Square Suite 2623 London SW1P 3AD New York NY 10174 United Kingdom USA © 2005 Royal Institution of Chartered Surveyors October 2005/50261/C.Schofield Consulting team: Resource and support contributions from: