Class A--It's Got to Be Green

A recent report by CoStar found that ENERGY STAR rated buildings, on average, are selling for $61 per square foot more than their peers and LEED certified buildings are selling for $161 dollars more per square foot. Lease rates, according to the same report, are also $2.50 more per square foot in "green" buildings. 

Obviously, sustainable buildings are in demand and are selling and leasing for more. Tenant demand is driving building owners and managers to make sustainable retrofits. AND, with office space classification systems based in large part on judgment, a building's rating may no longer hinge just on good location and reputation. 

So, what defines class A office space, anyway? ULI characterizes it as a having excellent location and access, able to attract high quality tenants and as being managed professionally. 

Seems fairly straight forward, right? Not really. In fact, rental rates and judgment often play a large role in the classification, but as for a commonly accepted defined set of metrics--nothing of the sort exists to my knowledge.

Bottom line:  Class A is being redefined and GREEN is now a deciding factor.  This is a trend that will not only affect commercial office space, but will inevitably change the way tenants choose industrial and retail space, as well.  I suspect owners and operators who do not make the necessary changes --ie retrofitting a building or distribution center with solar panels-- could find their asset(s) on the downward side of a scale that leads to obsolescence. 

Comments

[MasterPlan Capital]

It should come as no surprise that green building is profitable building. Resources cost money, conserving resources saves money. Lighting, heating and cooling buildings has become enormously expensive. Efficient use of energy equates to efficient use of money.
Also, tenant and customer satisfaction is higher in green buildings, this may mean more repeat business; another profit incentive.

[Barry Bernsten]

A fundamental change in our driving habits is now required.

The Automobile Industry is going to be in the same position as the Airline Industry in the next few months. Unless we get away from gas combustion vehicles, including Hybrids, the automobile industry (as we know it) will die.We need to make drastic moves. America needs to move to ELECTRIC. The vehicles are not as fast, not always as fun to drive, but the move will save Americans money (Billions) and help bring change to our automotive companies. Let's "Be Green"!!!!!!!!!!!! BG Automotive Group Ltd. has a car that will travel 80-100 miles per charge for $15,995. Finally a car that most Americans can afford. Did you know that 80% of all drivers, drive less than 50 miles per day? This new car will cost an equivalent of $0.20-0.25 cents/gallon (depending on electricity rates in your area). Why send $700 Billion per year to OPEC (now buying up U.S. companies) when we can use this money for our schools, health care, social security for all Americans, etc, etc, etc. We can make the difference if WE change.

[Matthew Savage]

I agree with you, Green is now a factor in pricing real estate.

It would be great if Solar companies could bundle energy efficiency into their mix somehow though. Is this already happening?

Solar companies are so hyped up on the sexiness of nanotechnology, that they are not taking a leadership role in promoting efficiency and positioning themselves as leaders in these two related and equally important fields.

Efficiency and conservation first, BEFORE high-tech add-ons, I say.

I think that LEED certification will become the standard in real estate pricing. Like the ENERGY STAR seal on an appliance, or the MPG rating on a new car, I see the LEED rating branded into building purchases that will directly affect pricing.

[Tom Poser]

Arno your comments regarding both LEED and Class "A" designations are right on. Concerning the determination of a building class, it really is an arbitrary system that allows a property owner to call his or her building whatever he or she would like. Rough parameters include ceiling height, 24 hour security, full service leases, location, year built, etc..., but beauty is still in the eye of the beholder.

Regarding LEED, our clients are all showing an interest in placing their companies in LEED certified buildings, but it is still easier said than done. Especially in the case of any type of company that has partners making profits. Sustainability can still be of importance, but economics are the driving force. Until either tenants drive demand more effectively, or government forces regulation, progress will be slow and mostly limited to new construction.

Tom Poser
http://www.sanfranciscotenantrep.com