How green is overtaking the commercial property market
In 2010, I analyzed the uptake of “green” certification in the U.S. commercial property market, explaining the differences in diffusion across markets and over time. But during the past four years, much has happened. The economy started to recover (in most places), and construction has picked up again. Also, the appetite for energy efficiency and sustainability in the real estate sector hasn’t abated — Google now gives 344,000,000 hits for a simple search on “green building.”
The EPA recently published its ranking of the top 25 cities with the most ENERGY STAR certified buildings, including nearly 7,000 ENERGY STAR-rated buildings, while USGBC has released an annual list of “Top 10 States in Nation for LEED Green Building” (Illinois is leading). But these rankings are mostly determined by city and state size, rather than reflecting true “greenness” of real estate markets.
I therefore revisited the uptake of green building certification in the commercial office sector, this time in collaboration with my colleague Rogier Holtermans and CBRE, with help from USGBC and the EPA. We picked the top 30 largest markets (by floor area), geocoded their boundaries, and filtered out all ENERGY STAR- and LEED-certified office buildings from the USGBC’s GBIG database (a pretty cool tool by the way).
For the denominator, CBRE Research provided the stock of space (number of buildings and square footage) for each of the markets. We then took particular care to make sure that non-competitive space (e.g., single-tenant, owner-occupied buildings) was excluded from the sample, as not to inflate the numerator.
This is neither statistical wizardry nor rocket science, but the findings are interesting nonetheless. To download the full report, please visit the RGRC website. Interestingly, “green” seems to be overtaking the market by force in most cities, but is also at a saturation point in many places:
- Adoption of green standards in the U.S. has increased significantly since 2005. During that time, the adoption of ENERGY STAR for office buildings increased to more than 10 percent of the market, and the proportion of buildings that are LEED certified increased from less than 0.5 percent in 2005 to 5 percent;
- Measured by floor area, numbers are even higher: LEED-certified space now totals 19.4% of the total building stock in the 30 office markets reviewed in the project. ENERGY STAR buildings represent about 30 percent of the commercial office market;
- After Minneapolis, where 77.0 percent of the commercial real estate space is certified as green, the cities with the highest percentage of green space are San Francisco (67.2 percent), Chicago (62.1 percent), Houston (54.8 percent) and Atlanta (54.1 percent).
Green building has overtaken the commercial market by storm – in less than a decade. Who knew that would be possible in the otherwise traditional and slow-moving real estate market? With different uses of space (think about sharing concepts like AirBnB), it will only be a matter of time until the next innovation will blossom, again taking the market by surprise. In the meantime, the implications of better, greener building will increasingly be felt in the real estate market. It will be interesting to see how fast the sector will respond to those changes, especially when it comes to the existing building stock.