Green Office Space: Higher Lease Premiums?

One of the ways that office real estate developers and investors can justify investments in green buildings is the higher rent that tenants pay for green office space.

However, there is somewhat conflicting evidence regarding the lease rates for green office space.

According to a survey released this week by CoreNet Global and Jones Lang LaSalle, Corporate real estate executives are less likely to pay a premium for green office space than a year ago, even though more of them place a higher priority on sustainability.

“A year ago, most (corporate real estate executives) directors believed that improving energy efficiency and reducing carbon emissions would cost money, at least in the short run," said Dan Probst, chairman of energy and sustainability services at Chicago-based Jones Lang LaSalle. “Today, they realize they can meet sustainability goals and save money at the same time.”

Of more than 400 real estate executives surveyed in September and October, 42 percent said they would pay more to lease green space, down from 77 percent last year. Tenants typically pay a 1 to 5 percent premium for environmentally sound office space.

However, on a more positive note, the same study showed that 69 percent of real estate executive said sustainability is a critical business issue, compared with 47 percent last year.

In contrast to the study above, another study conducted earlier this year by CoStar Group, a real estate research firm based in Bethesda, Md., found that green buildings generate 3.8 percent higher occupancy rates and are up to 30 percent more efficient. Green buildings also command higher rent ($11.24 more) and sale prices per square foot ($171 more).

So what does the future hold? As more cities across the country start requiring green building standards, it's likely that these buildings will continue to command higher rent. Starting next year, builders in Dallas will have to abide by green building standards for home and commercial construction in the city to reduce energy and water consumption. Regulations will be phased in through 2011 to meet the U.S. Green Building Council's basic Leadership in Energy and Environmental Design (LEED) program or similar standard.

Source: http://www.dallasnews.com/