Green building pays greenbacks

BERKELEY, CALIF.—Everyone’s talking about "going green," but the cost of the investment has, up to now, been difficult to justify. Energy savings aside, what are the financial benefits of using environmentally sustainable materials and technology in construction? Professor John Quigley at the University of California, Berkeley—Haas School of Business, is conducting the first systematic analysis of environmentally-sustainable construction and its economic impact on the real estate market.

In the working paper, "Doing Well by Doing Good? Green Office Buildings," which is scheduled to be completed this fall, Quigley and coauthors Piet Eichholtz and Nils Kok of Maastricht University, Netherlands, determined that investments in proven green building practices lead to sizable increases in a property’s market value and effective rent, or the average per square foot rent paid. Green-certified buildings produced an 8.5 percent increase in effective rent. The additional annual rent for going green amounts to almost $309,000, based on the average size building. Likewise, the incremental value of a green structure is an estimated $5.1 million more than an ordinary building. The study did not calculate the incremental cost of investing in green building practices.

When asked why he decided to research the economic value of green-certified buildings, Quigley, the I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy, replied, "To see if this was hype or real." While Quigley’s work concludes that the resulting profitability is real, he is continuing to research why green commercial buildings produce higher rents and market value by using engineering data from the EPA.

Quigley said, "Finding there is a linkage between energy and profitability of rental properties is potentially significant and leads to more extensive uses of this information." This research offers quantitative evidence for builders and investors who value the social responsibility factors of green buildings, but have lacked data about the financial performance of these investments.