Green Building & Sustainable Development
Real Estate Industry Quietly Embracing Green Development, Progressive Investor Reports
Although much less public than the major media announcements of the world's largest corporations, GE and Wal-Mart, the real estate industry is quietly transforming by embracing sustainable business practices and green technologies.
In an analysis of the industry, Progressive Investor reports that 41% of the 300 U.S. real estate investment trusts (REITs) are actively pursuing energy efficiency and green building upgrades and another 27% plan to do so.
Yet, we found that most social/ environmental investors (SRI) aren't aware of even one investment option in the area that meets their criteria - one of the few asset classes that remains a hole for SRI portfolios.
"That will change over the next few years," predicts Rona Fried, Progressive Investor
CEO. "Industry leaders are forming a responsible property trade association, creating criteria for certification, integrating green building into the appraisal process and into broker databases," she says.
Progressive Investor identified the following drivers for the trend:
- Developers and building owners are feeling the crunch of high energy and water costs, which, according to the Building Owners and Managers Association (BOMA), constitute 28% of operating costs for downtown office properties, and 30.4% for suburban properties. They see the quick payback and cost savings energy efficiency and other green building upgrades offer.
- Building green no longer costs more. Turner Construction's 2005 Green Building Market Barometer shows it costs a mere 0.8% more for basic LEED certification, easily recouped through lower operating costs.
- Increasingly, clients and tenants show a preference for green buildings, which have been proven to increase productivity, retain employees and lower absenteeism. The combination of reduced operating costs and more satisfied occupants translates into 3.5% higher occupancy rates, 3% higher rents, and a 7.5% increase in building value, says the McGraw-Hill 2006 SmartMarket Report.
- Corporations with sustainable business policies are building highly visible green headquarters including Bank of America, Toyota, Goldman Sachs, Hearst, IBM, JPMorgan Chase and Herman Miller. The Freedom Tower, which replaces the World Trade Center, will be LEED-certified.
- Green building is increasingly being mandated. Nine states and 40+ municipalities have passed legislation mandating LEED-certified buildings.
- Real estate firms see the writing on the wall and are nervous about holding a portfolio of obsolete, inefficient buildings.
"The benefits will make green ubiquitous over the next two years," says George Caraghiaur, vice president for energy services at Simon Property Group, owner of 300 shopping malls. "We're happy to have caught this trend at the beginning."
6% of commercial developments are LEED-certified, projected to jump to 10% of the market by 2010. Buildings produce 21% of the world's CO2 emissions (38% in the US), more than transportation or manufacturing. About 15 million new buildings will be added by 2015. Commercial buildings, the largest polluter, are expected to grow emissions 1.8% a year through 2030.
A recent United Nations study concluded that green buildings can do more to fight global warming than all curbs on greenhouse gases agreed under the Kyoto Protocol, while saving billions of dollars.
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