Green buildings are worth more

The greener the building, the more it’s worth. But don’t take our word for it. In 2021, the green building market in the US was valued at a massive $83.1 billion, according to Global Data. This was a leap of 10.8% from the previous year’s figure, a clear indication that developers, real estate professionals, and businesses are paying more for green buildings than ever before. According to the World Business Council for Sustainable Development, green buildings can sell at a higher price than their non-green counterparts. This is due to the “Green Premium”, a new and interesting term quickly becoming the go-to phrase for this phenomenon.

What is the Green Premium?

Bill Gates is thought to be the originator of the term “Green Premium” and though there aren’t any sources to back that up, he does explain it well. According to Gates, the Green Premium is the cost of choosing a clean technology over one that emits more greenhouse gasses. At this point, you may be wondering why this term is being framed as a good thing. After all, if you have to pay more money to construct a green building, why would you do it? The simple answer is that green buildings do need a little more capital as they’re being developed, but the returns are well worth it. If we reframe the term “Green Premium” in regard to selling, we could almost rewrite its definition as the higher price of selling a building that uses clean technology, over one that doesn’t. In fact, we’d go so far as to say that today’s Green Premium saves you from tomorrow’s “Brown Discount”. According to the World Economic Forum, studies show that the value of this Green Premium in real estate is a rent premium of 6.0% more than brown buildings, and a sales premium of up to 7.6% more.

Lawmakers are prioritizing going green. And you should too

Recent Deloitte research covers how European countries have tightened their regulations when it comes to property owners and developers going green. By 2023, only one in 10 London buildings is expected to meet green standards and that’s simply not enough. In the US, a variety of measurement standards have been put in place to help building developers and owners understand the extent of their compliance (or non-compliance as the case may be. Some include Leadership in Energy & Environmental Design or LEED, a globally recognized marker for sustainability based on points. The more points your building gets, the greener it is. Another measurement standard is BREEAM or Building Research Establishment Environmental Assessment Method. Originating in 1990, this is the longest-standing method of sustainability assessment that exists and uses a 5-star system to rate how green a building is. While many developers are starting to adhere to these standards, there are those that engage in greenwashing. This practice is considered by the global community to be completely unethical and involves giving a false impression that a building is more environmentally friendly than it actually is. A small side note for those who’re unsure of what makes a building green, here’s a simple definition. Green buildings are usually made from environmentally-friendly materials and incorporate systems that allow for maximum energy savings and minimal effect on the environment. In regard to water, that means ensuring you have a water management plan in place, that can be executed reliably using advanced water management systems such as WINT.

So why do green-building solutions make buildings more valuable?

Green buildings cost less to operate. This is just a fact. Smart CRE published research showing that green buildings have the potential to save 25-50% on energy (and the associated costs), 10-40% on water consumption (and their costs), and they reduce maintenance costs by up to 12%. But even before the operating costs come up, there are financing savings. Green bonds, a type of bond issued for environmentally friendly projects, are the fastest-growing segment of the global bond market, holding a share of $128.3 trillion! When we look to the future of buildings, we also have to consider the value of building owners’ future expectations. A perfect example of this is Microsoft and many other corporations’ desire to be carbon negative by the year 2030. As businesses start to look ahead, they understand that a monetary investment now will help them better achieve their goals years into the future. And they’re willing to invest to make it happen. There’s also the extrinsic value of green buildings. Tenants want to be in a space that’s conducive to business but also provides a healthy environment for employees, visitors, and customers. Occupants want to feel like they’re part of a sustainable solution by living, working, or shopping in certain places. Knight Frank Intelligence Lab states that, “The highest sales prices are achieved by those investors who aim for the best level of green credentials.” And this is where we can expect the real estate market to keep developing.

The future of real estate is green. Make sure you’re taking your cut

Green buildings will clearly be more valuable as time goes by, and ‘brown’ buildings will require significant investment to make them greener. Intelligent IoT systems are becoming an industry standard. Just as you can’t imagine a high rise without elevators today, you won’t want your building to be caught without resource management systems for energy, water, and other resources in the future. So whether you plan to sell or rent, installing smart systems to manage water is the best way to ensure you meet regulations today, future-proof your building for tomorrow, and increase its value for many years to come.

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