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Greenbuild 2008: Green Outlook for Sustainable Buildings in 2009

GREENBUILD 2008 -- The big annual conference on green building opens in Boston November 19, with 30,000 attendees. Interest in green real estate is at an all-time high. Does it pay off? We'll be examining that question throughtout Greenbuild. Today: In a meeting prior to the opening of the conference, McGraw-Hill Construction released the results of three major studies of the financial benefits of sustainable building. Here are some highlights from the reports.

McGraw-Hill Construction image on EnergyPriorities.com

"2009 Green Outlook: Trends Driving Change" is one of three reports released by McGraw-Hill Construction today at Greenbuild 2008.

Greenbuild 2008, the big North America conference and expo on green building, opens tomorrow morning in Boston. The US Green Building Council, which organizes the annual event, expects 30,000 people this year. That's remarkable after the 20,000 at Greenbuild 2007.

There is little doubt that green buildings are steadily becoming the new norm for commercial real estate, especially at the high end of the office space market. The question has been whether sustainable buildings pay off, and exactly how.

This afternoon, in a session prior to the opening of the Greenbuild expo in Boston, McGraw-Hill Construction released the results of three major studies of sustainable building.

Index to Greenbuild 2008 Day-by-Day at Energy Priorities

The results were published and released today in three new reports:

  • 2009 Green Outlook: Trends Driving Change -- Industry outlook on market size, trends and opportunity across green building sectors and regions.
  • Commercial and Institutional Green Buildings: Green Trends Driving Market Change -- An update to a study from 2006, this report covers the market size and activity in green commercial and institutional building.
  • The Green Home Consumer: Driving Demand for Green Homes -- Insights into the activities, attitudes and preferences of consumers who have purchased green homes in the past 3 years.

It's important to understand where owners find the greatest value in green commercial buildings, so that the return on investment can be estimated consistently and accurately. It's not enough to have a general feeling that green is better because of a collection of benefits, such as better operating cost, productivity, rents, or resale values.

The business case for green buildings

There are hard numbers in MHC's reports. Harvey Bernstein, vice president of Industry Analytics, Alliances, and Strategic Initiatives for McGraw-Hill Construction, highlighted the key findings for us.

MHC found that the decrease in operating costs is the most pronounced benefit, followed by the increase in building values. Operating costs in green buildings are 13.6 percent lower, and building values are 10.9 percent higher than for their non-green counterparts. Of course one drives the other, but the overall benefit is distinct whether the building is owner-occupied or investor-owned.

"This information will help provide some transparency to the rest of the market about what the average nonresidential building owner is seeing in the market today with respect to green," Bernstein says.

The results are significantly higher than the expected benefits reported in 2005. Bernstein says it indicates that the industry is gaining confidence as it learns more about the advantages of green.

Financial benefit 2005 2008
Decreased operating costs 8-9% 13.6%
Increased building values 7.5% 10.9%
Improvement in ROI 6.6% 9.9%
Increased occupancy 3.5% 6.4%
Rises in rent 3% 6.2%
Source: McGraw-Hill Construction

Instead of building green on a leap of faith, owners increasingly expect financial returns from their investments in sustainable facilities. A third of owners studied expect operating costs to drop by 15 percent or more, while occupancy and rents rise by at least 5 percent.

What Owners Expect from Green Buildings
32% of owners expect decreases in operating costs to be more than 15%
18% of owners expect increases in building values to be over 15%
13% think that increased ROI will be over 15%
38% think occupancy will increase by more than 5%
31% think rents will rise by more than 5%
Source: McGraw-Hill Construction

Green, a stable building sector during a recession

How will the current economic downturn most likely affect demand for green commercial real estate? In discussions leading up to Greenbuild, we've heard everything from enthusiasm to dread. Of course there are no figures -- there won't be for another several months -- but Bernstein is in the middle of the spectrum.

"We think green will be a stable market for the industry, with growth in certain sectors," Bernstein says. "USGBC members report green building being less affected by the down market compared to non-green. So this means green is where the opportunity is in a down market."

Graphic showing green building market share growth, on EnergyPriorities.com

McGraw-Hill Construction research shows a 5X growth in market share for green buildings since 2005, and anticipates as much as 2X to 3X growth between 2008 and 2013. (McGraw-Hill Construction graphic)

Soft benefits and portfolios also drive growth

Today's strong market for sustainable buildings is another point on a trend line that has been climbing rapidly in recent years. Certainly, proof of a financial payback will help make the business case for green buildings. There are other, non-financial factors driving the industry's growth.

"Essentially, green building has become an area with huge opportunity and even greater potential to help tackle unemployment through green jobs, and address other societal issues," Bernstein says.

There may also be an increased push from the consumer market as well. MHC also found that homebuyers are willing to pay more for a green home, and home builders are more insulated from the down market as a result of building green.

"Green is where the opportunity is
in a down market."
--Harvey Bernstein, VP, Industry Analytics, Alliances, and Strategic Initiatives, McGraw-Hill Construction.

The USGBC reports that ten national retailers are now including LEED elements into their standard store designs. Retail is one of the most difficult real estate categories to build green, yet it is the class where sustainability measures are most visible to a company's customers.

Whatever the reasons, Bernstein says the fact that the market has accelerated so quickly is important.

Green building market share to grow in 2009

"By the end of the year, we expect that nonresidential green project starts will be 10 percent to 12 percent of the market. This is compared to only two percent penetration just two years ago," he says. "That is a story that the industry needs to know as they create their own long-term marketing and growth strategies, so they know how to plan moving forward."

"2009 Green Outlook: Trends Driving Change" was handed out at the end of the meeting today. Digital editions of the reports are available for purchase starting today, priced at $149-$249, from McGraw-Hill Construction.

McGraw-Hill Construction is in booth 1436, to the right as you enter the expo hall.


How can i subscribe to MHC reports or newsletter?

The reports mentioned in this article cost between $150 and $250 each.

They have an e-newsletter for the construction industry.

McGraw-Hill Construction is at http://construction.com

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