Commercial Solar: The Demand for and Marketability of Green Buildings
By John Shaw
Green buildings are no longer a niche category, and the increasing adoption rate speaks to their many benefits. Commercial property owners can be leaders in the sustainable commercial building movement, especially with solar. Soon, however, green design will be the norm instead of the exception, and property owners who choose not to invest in green buildings may miss out on the opportunity to distinguish their commercial property.
There are many studies highlighting the growth of the sustainable commercial building movement. This research showcases the financial and environmental argument for green buildings and how they are differentiators in a competitive market.
The Shift Toward Sustainable Commercial Buildings
According to the Coldwell Banker Richard Ellis (CBRE) 2019 U.S. Green Building Adoption Index, more than 13% of all commercial office buildings across the largest U.S. markets are now green certified. Denver ranks in the top 10 for sustainable design-build projects, with 48.2% of green-certified office space. A 2018 Johnson Controls survey of 1,900 facility and energy management executives revealed that 58% planned to increase investment in energy efficiency within the next year. Furthermore, they found that nearly 48% are willing to pay a premium to lease a certified green building.
According to the U.S. Green Building Council (USGBC), the main drivers are competitive differentiation, risk mitigation, attracting tenants, fixing or lowering operating costs (OpEx), cost-effectiveness, and rent premiums. Many studies identify strong financial evidence in support of such an investment, as well as the less quantifiable benefits including improving productivity, attracting and retaining talent, and employee wellness.
According to the Rocky Mountain Institute, commercial buildings are responsible for nearly 40% of the electrical consumption in the U.S. In response to those adverse environmental impacts, mandates like the Boulder Energy Conservation Code were adopted, creating a scenario where existing, conventional assets are outdated and potentially out of favor. Additionally, green buildings prove to be a more resilient asset during economic downturns, considering their lower OpEx and higher demand.
Financial Benefits of Green Buildings
Beyond tenant and market demands, there is a mounting and compelling financial case to invest in green improvements or buildings.
- Environmentally friendly buildings realize energy savings ranging from 18% to 30%.
- In new construction, according to the USGBC, an upfront investment of 2% in green building design results in life cycle savings of 20% of the total construction cost.
- Transforming an existing building decreases operation costs by almost 10% in one year.
- Green, sustainable buildings are valued at up to 10% more than conventional buildings.
- According to a CoStar Group study, LEED-certified buildings harbor rent premiums of 38% over non-LEED buildings and have 4.7% higher occupancy.
Solar and Green Buildings
While not always visible from pedestrian level, onsite solar is one of the most impactful ways to advance a building’s green credentials; onsite solar energy generation has no carbon emissions.
Solar offers four direct financial benefits to property owners. Roughly half of the original investment comes back via two tax benefits that can be monetized in the first year of operation – the federal investment tax credit (ITC) and 100% bonus depreciation. Additionally, Xcel Energy offers production-based renewable energy credit (REC) payments for 20 years. The last and most obvious benefit is OpEx reduction via utility savings. Both of these increase net operating income (NOI), thereby increasing property value.
Future of Sustainable Buildings
As the market evolves and standards become more stringent, greenhouse gases from commercial buildings will no longer be accepted as unavoidable externalities, and green buildings will become the norm.
Green buildings with solar reduce OpEx, produce incentive income, increase property value, generate tax benefits, command rent premiums, and increase occupancy, all of which de-risk the asset and yield premium returns over conventional assets.