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Higher Lease Rates for Green Buildings?

June 7, 2013 | 0 comments

Several U.S. property management firms are experiencing higher lease rates for buildings within their portfolio that are LEED certified or have the ENERGY STAR label.

Why? Most experts would agree that, by providing a healthier, more productive working or living environment that may also cost less to operate and maintain, you attract tenants faster and retain them easier.

For Hines, a leading real estate development, investment, and management company based in Houston, TX, sustainable building design has contributed to an 8% increase in occupancy rates for its green buildings as compared to similar non-green buildings of its competitors.

CB Richard Ellis, a full-service real estate services company headquartered in Los Angeles, completed a study looking at buildings in its San Diego portfolio with LEED certification or ENERGY STAR ratings. It found these green buildings with vacancy rates of 11.7%; their non-green counterparts had vacancy rates of 15.7%. On average, CB Richard Ellis also found that lease rates for these green buildings were $2.42 per square foot per month, as compared to $2.04 for non-green buildings.

CB Richard Ellis also found, in a study with the University of San Diego’s Center for Real Estate and McGraw Hill Construction, that its LEED-certified buildings have 3.5% lower vacancy rates and 13% higher rental rates than the market average (based on 150 surveyed office buildings across the country).

These numbers all are in line with what a CoStar Group study found back in 2008: green buildings, on average, generate 3.8% higher occupancy rates, higher rent ($11.24 more per square foot), and sale prices ($171 more per square foot).

Because green buildings have done so well in terms of occupancy and lease rates, a new topic has emerged for commercial building owners: brown building discounts. As the number of green buildings continues to increase, and the demand from tenants persists, Andrew Nelson, director of research at RREEF Real Estate, says non-green buildings (brown buildings) may suffer from unavoidable discounts due to older, less efficient operation. These more conventional buildings may face decreases in value as well.

Have you experienced higher lease rates or lower vacancy rates as a result of green upgrades? 

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