In Part 1 of the business case of sustainable real estate, I wrote that it is hard to dispute it is less risky to take action to reduce green house gases than to do nothing. I would like to now explore the business case for green — market factors and regulatory factors.
The Business Case for Green – Market Factors
A good place to start is to understand the financial benefits of potential green features and how they could result in value creation. There are two types of factors to evaluate: market factors and regulatory factors.
Let’s start with just one of the market factors: lower operating costs. Given today’s technology, there should not be significant incremental cost involved in developing a high rise office or residential building that is 15% more energy efficient than a “traditional” building which meets minimum ASHRAE requirements. A 15% savings in energy costs can lead to millions of dollars in additional asset value. Here’s how: Assume that energy costs are $3 per s/f. A building which is 15% more energy efficient means saving 45¢ per square foot in energy costs. If the building is 500,000 square feet, total savings would equal $225,000 per year. Going one step further, assuming an 8% cap rate, saving 45¢ per foot in energy costs translates into a $2,812,500 increase in the value of the building. Spread that savings and increased asset value over a portfolio and the value creation proposition is hard to…
There's more good info in this linked article. Read the whole thing: The business case of sustainable real estate – Part 2, Green Edge « Saint Consulting.
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