May 2, 2002

The future bodes well for green development

Around the world, “we will erect as many buildings in the next 50 years as we have in the last 5,000,” predicts David Orr of Oberlin College. For those developers in the Northwest who see light at the end of this tough economic tunnel, this bodes well.

We know that market demand will return. When it does, a building’s quality may need to be defined by more than the traditional criteria of the past. Definitions of quality in the near future may likely include environmental factors.

Commercial demand

In the building industry, the trend toward environmental awareness is ever apparent. More than 1,400 organizations have joined the U.S. Green Building Council, which developed the Leadership in Energy and Environmental Design (LEED) standards, a widely accepted green-building rating system. In less than three years, the number of LEED-registered projects has grown from zero to over 370. Both Ford and Honda already have buildings that are certified by the U.S. Green Building Council.

According to Nigel Howard, vice president of the U.S. Green Building Council, more than 40 percent of all new projects in the United Kingdom enroll in its equivalent to the LEED system. The U.K.’s commercial developers are seeking the system as a way to secure tenants who are looking for environmentally responsible buildings. Could this be a precursor to the future in the United States?

Quality and value

Traditionally, speculative developers have created value based on direct and immediate economic incentives related to minimizing risk and maximizing short-term returns — very tangible measures. The intangible element of the equation that can affect a building’s value is the building’s perceived quality.

The challenge is to find measurable “value” and “quality” through environmental values. This can include minimizing risk of liability for indoor air quality by creating healthy buildings; minimizing risk of unstable utility costs by minimizing current consumption; minimizing risk by providing flexibility now to install more advanced utility technologies in the future; responding to public perception/pressure of corporate responsibility; and by creating more demand through positive impacts on the health/productivity of the building’s tenants.

Energy-efficient buildings are more resilient to fluctuations and instability in energy and water costs, and may actually result in higher future profits for developers based upon higher desirability from potential tenants and, ultimately, lower vacancy rates.

Economic motivators

While an increasing number of speculative developers are responding to an internal value set — a strong belief that environmentally smart development is “the right thing to do” — the bottom line is still what matters in the end. Research is beginning to show that green development could be a smarter economic decision and a potential criterion for investment in the future.

Unique factors play into making economic decisions when doing a green speculative development. The Seattle-based Urban Environmental Institute recently identified several strategies arising from the emerging green market. However, all are not yet economically proven and only serve as a guide for developers.

• Higher rents might be commanded for certain green features, including low emission materials and natural daylighting, as well as systems that offset increasing energy and water costs. In a 2001 research poll on the residential market by Professional Builder and HousingZone.com, 96 percent responded that they are willing to spend more money for “green” — a 7 percent increase in one year. And 20 percent reported that they are willing to spend up to $10,000 more for a home in green developments.

• Lower vacancies might be achieved by using green features as a marketing edge. A LEED-certified building may rent more quickly.

• Insurance expenses may be reduced as a result of decreased environmental risk. Lending costs may be lower and financing incentives may be developed for green structures.

• Inflation risk may be reduced if environmental features are developed now but implemented in the future as utility and water costs rise.

• Increase in building valuation through a net operating income increase on non-triple net rents.

• According to a study by the Rocky Mountain Institute, staff productivity gains of 6 percent to 16 percent have been reported from energy-efficient designs, demonstrating “green” as a marketable asset.

Public savings

Governments, utilities and other institutions are encouraging green development through economic incentives in order to help reduce the demand for services and minimize expensive infrastructure investments. Some examples:

• Seattle City Light Energy Smart Services — Packages offering up to 70 percent or more of the cost of upgrading facilities with energy-efficient lighting and equipment; reimbursement for professional design and engineering services required to develop cost-effective conservation measures; partial reimbursement for developing a building commissioning plan.

• Seattle City Light, Seattle Public Utilities LEED incentive program — For those who meet eligibility, grants are provided for projects committed to achieving a LEED-certified rating, in some cases up to $20,000.

• Building area and height incentives — Portland is encouraging low-impact stormwater strategies to help enhance critical salmon habitat and minimize expensive infrastructure investments. This includes allowing 3 square feet of additional floor-area ratio for each square foot of vegetated roof.

The next wave of public incentives will likely grow out of the fact that a green development could be housing more people for significantly less resource consumption per square foot, which means less infrastructure investment. As such, why not allow a 25 percent floor-area ratio or a height increase?

The future

Over time, market demand for environmentally smart speculative development may become a necessity as energy resources continue to be depleted and costs for utilities continue to increase.

In 2001, the Seattle area saw an average increase of almost 17 percent in gas costs, a 20 percent increase in electrical costs and a 12 percent increase in sewer costs. Developers that adjust their definitions for quality and value now may experience a market advantage over developers that choose to build more traditionally.

“It is time now for companies in our sector to ready themselves for the business environment of the future, not the past,” said London developer Sir Martin Laing, addressing the Sustainable Construction Task Group in London last fall. “This requires leadership from the top — we have got to stop regarding sustainability as some irksome burden being forced on us. It is an opportunity to be grasped, to improve our reputation, reduce our risk and gain the bottom-line rewards.”

In the U.S. this also rings true. In order to protect the future for our businesses, we all need to work towards a new definition of quality.

Other Stories:

• When building green isn’t thinking green
  
• Sustainable design in the real world
  
• Why green buildings fatten your bottom line
  
• Smart planning begets smart lighting