FEATURE ARTICLE, APRIL 2008

CORPORATE NEED DRIVES BUILDINGS TO LEED
Developers of new buildings, as well as owners of existing properties, are finding that sustainability is increasingly a major selling point for prospective tenants.
Helee Hillman and Diane Vrkic

In the past couple of years, companies have latched onto the idea of becoming more sustainable, and one of the most important strategies enabling them to get there is to occupy buildings that are energy efficient and otherwise gentle on the environment. Perhaps the biggest obstacle is that there is not enough supply of green office space to meet rising demand. That may be changing, as multi-tenant building owners realize that there is tremendous opportunity in meeting this demand, and significant risk in ignoring the trend.

Most large companies see sustainability as a major issue and are willing to pay a premium for space that meets sustainability standards, such as the Leadership in Energy and Environmental Design (LEED) Certification maintained by the U.S. Green Building Council (USGBC). In a recent survey conducted by Jones Lang LaSalle and CoreNet Global, the leading corporate real estate (CRE) organization, 90 percent of CRE directors worldwide said sustainability was a critical concern today, or would be within the next 3 years.

Topping the list of factors driving corporate interest in sustainability are rising energy costs and the possibility of government regulation of greenhouse gas emissions, also known as carbon emissions. Since buildings are responsible for 65 percent of all electrical usage and 30 percent of all greenhouse gas emissions, according to the USGBC, it is no surprise that CRE directors are taking an active role, if not the lead role, in carrying out their companies’ sustainability programs.

“It’s crystal clear to us that a focus on sustainability has become important to the Fortune 500 and similar companies around the world,” says Eric Bowles, vice president and director of research for CoreNet Global. “We have passed the tipping point for sustainability, and the question is no longer about whether sustainable design should be considered.  The question will be, ‘how do you explain why you chose not to have a sustainable design?’”

Surveying 2,300 CRE directors on four continents, CoreNet Global and Jones Lang LaSalle learned that 77 percent of companies are willing to pay a premium in their occupancy cost to be in sustainable buildings, while only 22 percent expect to pay the same.

In fact, most studies indicate that developing new buildings to LEED standards carries a premium of less than 5 percent in most cases. Estimates by survey respondents placed the premium somewhat higher, as 38 percent said sustainable buildings will cost 1 to 5 percent more than traditional buildings, 52 percent estimated the incremental cost at 5 to 10 percent, and 22 percent estimated the premium at more than 10 percent. One possible reason for the discrepancy in the numbers: CRE directors that focus on retrofitting existing buildings will see higher incremental costs than those engaged in new construction projects.

Whether the cost of sustainability is minimal or runs into the double digits, it’s money well spent. In addition to reduced absenteeism and employee turnover, research has shown a 2 to 16 percent increase in worker productivity.  Energy savings are quantifiable and substantial, as much as 30 percent compared to traditional buildings.  For newly constructed LEED buildings, the average payback occurs between 12 to 24 months. 

Moreover, there are also LEED projects that have been able to negotiate sales tax and mortgage tax exemptions, real estate tax reductions, and reduction in utility rates.

Despite the opportunity to apply techniques that make buildings more environmentally friendly, respondents to the CoreNet Global/Jones Lang LaSalle survey found obstacles to sustainability that have hindered widespread adoption:

• Only 17 percent said that there is good, or widely available, sustainable real estate solutions in markets where their companies need to locate offices;

• 42 percent reported patchiness and said the supply chain is good in some markets but not others; and

• 41 percent view overall availability as limited or minimal.

As of February, there were just 75 LEED certified buildings in Chicago. Many of those are public buildings such as libraries or government offices; others are manufacturing plants or retail locations. Of the few that are office buildings, many are owner-occupied buildings such as corporate headquarters facilities. A company that wants to lease space in a LEED certified building might have very few choices, if any, in the area where it wishes to locate.

A building need not be LEED certified to be energy-efficient and environmentally friendly; however, LEED certification provides credibility that more and more owners value as a way to get credit for their efforts at sustainability. Most LEED buildings to date have been new construction, but an existing building standard (LEED EB) is gaining in popularity with owners, and many companies are seeking certification of their commercial interiors (LEED CI) to show their commitment to sustainability even in leased space.

Currently, 164 buildings in Chicago are registered for LEED certification, meaning that architects, construction contractors and facility managers are following USGBC’s guidelines to get enough points to qualify for base Certification, Silver, Gold or Platinum LEED status after completion. As with currently certified buildings, most of the registered buildings appear to be property types other than multi-tenant office buildings. Even so, companies that want to lease space in a LEED certified building may soon have the opportunity to do so.

Most LEED certified buildings today are new construction; as of February, there were 70 LEED EB certified buildings across the country. LEED accredited professionals can attest that the situation is changing, as they are being hired not only by corporate occupants but by multi-tenant building owners to analyze what it would take to bring existing buildings up to a LEED standard. It often turns out that a LEED Silver or even Gold is not out of reach. The equation is easy to calculate: minimal cost of LEED certification, offset by higher rent and occupancy levels, equals the availability of more sustainable buildings in the near future.

Helee Hillman is a project manager in the Project and Development Services group at Jones Lang LaSalle. Diane Vrkic is Global COO of Energy and Sustainability Services at Jones Lang LaSalle.

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