Powerful leasing stats for green buildings — on two continents

 

Strong evidence continues to build showing that green buildings can deliver better investment value, both now and later.

Moreover, the strength of this assertion is underscored when you see confirmation of leasing performance from unrelated international markets with different green building rating standards.

The below leasing stats are from local brokers and property managers in San Francisco and Paris. We hope that they can give you more ammunition for those green building value conversations you may have with clients and other stakeholders.

San Francisco: LEED vacancy = 9.7% vs non-LEED of 15%

Dave Klein, of NAIBT’S San Francisco office, maintains the RealGreen Index. It tracks the availability of office space in green buildings here in San Francisco, where he’s estimating a 9.6 million sf market of LEED buildings as of 9/09. That green space is overwhelmingly LEED-EB certified.

In our experience with underwriting markets, there is a very different point of view about 9.7% vacant submarket vs a 15% one, even in a historically strong market like San Francisco. That 530bp gap in vacancy shows that the non-LEED buildings will eventually be forced to offer either lower rents and/or larger lease concessions, resulting in lower effective rents to attract tenants.

If those non-LEED Landlords decide to tough it out and not offer greater concessions to compete, they’ll still be paying for that higher vacancy by being the last buildings to fill up, as the local market recovers and the LEED-certified buildings fill up first. It’s really just a question of time, as tenants seem to have already voted with their feet and checkbooks.

On the flip side, calling out these non-LEED buildings like this seems to be a nice circling of a fat EE-retrofit market, in my view.

» Download LEED vs Non-LEED vacancy (NAIBT) (204)

» Download NAIBT Green Index (260)

Paris = Green vs non-green pre-leasing –> 57% vs 11%

Recent story out showing that the French HQE (Haute Qualité Environnementale) green building certification is strongly preferred by tenants in the Ile-de-France submarket of Paris (largely corporate Class A office submarket).

Keep in mind that this is a 2 million sqm submarket — about 21,527,821 sf, meaning no small shakes for the fortunes of those investors. Per GlobeSt:

Around three-quarters of total office space above 5,000 square meters planned for delivery in 2012 and beyond will carry the standard, most of them in the periphery in the south of the French capital. It also concluded that HQE certification is accelerating leasing processes, with 57% of certified space deliverable next year already let, against 11% which is not certified.

In the case of this market, if you are the owner of a non-green building in development here (not even in operation, yet), and your investors see a pre-leasing variance of this magnitude, what kind of conversation are you having with them about creating value with their money?

Not a fun one, I think.

» Read the full story on French green building certification and leasing stats here.

While I realize that the real estate industry requires greater empirical support for the value contribution of environmental certification, these stats already point to huge implications for building owners in each of their submarkets as well as all others where green building penetration is growing. All other things being equal, lower vacancy and/or faster absorption  accrues directly to the bottom line and deliver a great pop to returns.

In my opinion, even though the industry hasn’t reached consensus on a final approach to valuing green buildings, asset underwriting methodology in each of these sub-markets must consider a particular asset’s environmental performance vs that of its peer set, since tenants have demonstrated a clear preference.