Commercial Real Estate Cashing in on Advantages of Green Upgrades

The Empire State Building in New York, green inside and out. (image: nyrp.org)

It’s normally considered a “cool” color, but right now, green is the hottest trend in commercial real estate. New buildings are being constructed with energy-saving and environmentally friendly features, and famous old skyscrapers are being retrofitted that way as well.

The Empire State Building, New York’s and probably America’s most instantly recognizable skyscraper (even without a giant gorilla scaling it), is undergoing an 18 month, $13.2 million green makeover the AP reported on Sunday. All 6,500 windows are being replaced by insulating windows, radiators are receiving additional insulation, and the building’s lighting, water, and ventilation systems are all being upgraded for higher efficiency as well.
The Empire State’s green renovation is nothing compared to what other classic buildings are experiencing. Chicago’s Sears Tower, for example, is spending $350 million over 5 years on a comprehensive, alternate energy- and conservation-focused upgrade.  Wind turbines will generate electricity for the building while solar panels will heat its water. Rooftop gardens will help keep it cool by absorbing solar heat. Windows will be insulated, an advanced lighting control system installed, and restrooms modified to save water.

Even more modest buildings are investing heavily in green technology. For example, the Christman Building in Lansing, Michigan is a historic office building. Its owners spent $8.5 million to increase natural light, build a reflective “cool” roof, and make the plumbing more water efficient.

The interior of the Lansing Building, with enhanced natural lighting. (image: greensource.construction.com)

Why? Just to do their patriotic duty to conserve energy and reduce carbon emissions? Probably in part—let’s give commercial landlords the benefit of some doubt. But even if that’s part of their motivation, it’s certainly not the whole of it. Perhaps the best way to describe commercial real estate’s sudden embrace of green technology is the old saying, “Doing well by doing good.” Yes, it probably does feel good for the buildings’ owners to conserve energy while doing their part for the climate; however, it probably feels even better to make money by helping the environment. Going green can be very lucrative for landlords.

First, there’re the energy savings alone—remember, older buildings were built before energy efficiency was even the first glimmer of a thought in people’s minds, and aging infrastructure and mechanical systems have not helped. Old commercial space is very energy inefficient. The Sears Tower improvements are expected to cut the building’s electric bills by 80 percent a year, while also saving 24 million gallons of water annually. The Empire State’s improvements are projected to save $4.4 million per year in energy costs—enough to recoup the investment in 3 years, after which that’s pure profit. Overall, according to Transwestern, a commercial real estate company, energy efficient buildings have seen a 2 percent reduction in energy costs, even as electricity rates have increased 10 to 40 percent.

Second, with so much focus on being green, green buildings have higher occupancy rates than non-green. A study by the CoStar Group, Inc., a real estate advisory and informational firm, shows that green buildings have occupancy rates between 3.6 and 4.1 percent higher than their non-green peers, while commanding rents that range from $2.40 per square foot to $11.33 per square foot higher. Those are enormous advantages, especially at a time when commercial real estate vacancy rates have climbed by around 20 percent—if going green lets you gain, or least hold onto, tenants while also raising the rent, well, what more could any landlord ask for?

There are tenants you can’t even compete for or try to woo without some energy or environmental certification, such as the Leadership and Environmental Design (LEED) certification from the U.S. Green Building Council. Some businesses, in fact, hold out for the highest, most demanding, and most prestigious certifications—such as the LEED “platinum” certification—before considering commercial space. That (and also bike racks on the 32nd floor) was a requirement of upscale and eco-conscious Swedish construction firm Skanska, for example, before they leased Empire State Building space.

Saving energy, saving the environment, and making a profit—not bad. Doing well by doing good should be the mantra of the alternate energy, energy conservation, and green construction industries.