Report Review – The Business Case for Green Building

By: Angelina Howard, IBE Student Intern

The Business Case for Green Building: A Review of Cost and Benefits for Developers, Investors, and Occupants from the World Green Building Council is now available. The report provides detailed information and case studies on Design and Construction Costs, Asset Value, Operating Costs, Workplace Productivity and Health, and Risk Mitigation. The following is a brief summary of  some of the key topics in the report.

Design and Construction Cost

According to research, green buildings do not cost more than conventional buildings that are built to code. Program management, environment and cost strategies help make building green cost effective, and increased upfront costs in green buildings are often offset by a decrease in long-term life cycle cost. Based on findings from various research studies, actual design and construction cost premium of green buildings have been documented to range from -.4% to 12.5%.  These studies included buildings from the US, UK, Australia, Singapore, and Israel for projects completed in 2000-2012.

The Perception Gap, The Business Case for Green
Building © 2013, pg. 26

There is a major perception gap but when it comes to design and construction cost. 

Some people believe that building green increases design and construction cost by approximately 10-20% (with some estimates as high as 29%) compared to the cost of conventional code-compliant buildings. However, design teams are challenged to deliver green buildings with conventional budgets. Figure 1 illustrates this perception gap.

Asset Value

The Asset Value for green buildings is increasing. Green buildings have begun to attract tenants and command higher rents and sale prices and investors and occupants are becoming more knowledgeable regarding the environmental and social impacts of the built environment. A lot of this is due to a building’s asset value. A building’s asset value has different meanings for the various stakeholders. Figure 2 illustrates stakeholder perceptions that affect the value of the buildings.
Based on information gathered from studies conducted over the past decade, primarily on LEED certified office buildings in the US, green buildings tend to have higher asset values than conventional code-compliant buildings, which have led to higher sale prices. The benefits of this are higher rental/lease rates, lower operating expenses, higher occupancy rates, and lower yields. Sub-market price premiums were found to be in the range of 0-30% when comparing certified green buildings to non-certified green buildings. Evidence also shows that higher levels of LEED certification also achieve higher sales premiums.

Operating Cost

Documenting annual energy savings is fundamental to building green. It is estimated that energy savings from code-compliant buildings range from 25% – 30% in U.S. LEED certified buildings to 35% – 50% in New Zealand green buildings. See Figure 3 for energy savings of 2003 LEED certified buildings.
There are energy savings from green building retrofits, improved maintenance standards, and refurbishment. Energy savings for green building retrofits are not as high as those for new builds, but they are still substantial. As energy prices continue to grow, benefits of energy efficiency will become important, strengthening the business case for energy efficiency retrofits. When it comes to maintenance, there can be a significant decrease in maintenance requirements and replacements if sustainable building systems are used. With refurbishment, green buildings provide adaptability, insuring that the building will be a valuable asset presently and in the future.
Even with these best practices in energy efficient design, there are still challenges that can prevent a green building from performing as expected. However, these are most often resolved through building commissioning, leadership committed to green building management practices, effective and transparent communication of successes and lessons learned, and tenant awareness programs.

Workplace Productivity and Health

Productivity & Health Benefits,The Business Case for
Green Building  © 2013, pg. 67
According to the report, healthy work environments are a prominent agenda item for the building industry. Green buildings positively impact the employees working inside of them. Employees productivity and health are improved due to the healthy indoor environments that green buildings provide. Healthy indoor environments include high levels of natural daylighting, appropriate levels and types of artificial light, use of materials with minimal toxins, appropriate outdoor air ventilation, thermal comfort and open and inviting spaces that increase interaction and physical movement. The improved ventilation has helped reduce the cases of “Sick Building Syndrome.” Healthy indoor environments have also reduced stress in the workplace. A 1998 study, cited by Heerwagen, states that stress and frustration levels declined and patience increased when employees had views of nature through windows. Those with a window view are typically less stressed than those constantly viewing a screen or working in a viewless room.
Please check out the full report here and the Executive Summary here.
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