Markets for Greening Existing Buildings: Chapter 3 of Greening Existing Buildings

For commercial building owners, the key economic factors for justifying green and energy-efficient building investments are increases in:

1. Average rents
2. Average occupancy rate
3. Resale value

Over time, these three factors, along with others such as tenant retention, ease of getting financing, lower insurance costs, etc., will help overcome any adverse consequences from the costs of greening buildings and certifying them. What are the facts today?

RREEF Research reported in February 2009 its expectation that “major real estate markets—the markets where institutional investors focus their attention—will be pushed even faster to the tipping point where green building becomes the market standard.” The research predicts that older, less-efficient conventional buildings will actually have their market value discounted in the years ahead. Even with the continuing global economic recession, government policies will continue to accelerate the push toward greener buildings, as will tenant demand, especially from corporate real estate executives. There is also “no pronounced indication that major institutions are pulling back from their greening commitments” as investors. In this context, greening existing buildings, especially upgrading energy efficiency, can be seen as a “defensive strategy,” since these less-efficient properties risk “market decay” in the form of lower rents and higher vacancies, “as tenants increasingly migrate to more modern, greener buildings.”