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Green buildings in US attract higher rents and sell for more

It is the first credible evidence on the economic value of the certification of green buildings in the commercial property sector, the research commissioned by the Royal Institution of Chartered Surveyors shows.

Its report, Doing Well by Doing Good, shows that buildings with energy star ratings command a premium of 3% per square foot. In addition when looking at effective rents, the true rent of a property, considering rental concessions, spread over the life of the lease, the premium is at least double at 6% and above.

The researchers also examined the impact on the selling prices of green buildings, and here the premium is even higher, in the order of 16%. This implies that upgrading the average non-'green' building to a 'green' one would increase its capital value by some $5.5 million, the report says.

The results suggest that tenants and property investors are currently willing to pay more for an energy-efficient building, but not for buildings that are 'sustainable' in a broader sense, it concludes.

'This piece of research is an important first step in building an evidence base on the topic of the value of green buildings. Previously with only anecdotal evidence available on which to base decisions surrounding development of energy efficient buildings, it is understandable that the uptake of some measures has been frustratingly slow,' said Simon Rubinsohn, RICS Chief Economist.

'With more comprehensive evidence based research, such as this paper, the economic argument for having an energy efficient building will be strong. Any businesses wishing to maximise profits will have to start looking at increasing the energy efficiency of the buildings in order to remain competitive. By proving that green buildings are economically beneficial due to the savings they can make and the higher rental yields they attract, non-green buildings will eventually become an outdated model,' he added.

The research, carried out by Piet Eichholtz and Nils Kok of Maastricht University, the Netherlands, and John Quigley of the University of California, Berkeley, United States of America, is the first of its kind to examine the financial performance of green office buildings in the US.