Green Properties Return More Green To Investors, Study Finds

LEED-certified U.S. office buildings have achieved higher rents overall since 2015 than their noncertified counterparts, according to a new study by Cushman & Wakefield. The greener properties averaged $4.13, or 11.1%, higher rents.

More sustainable properties have also outperformed less green counterparts during recession recovery periods over a longer timeline, including both the financial crisis of the late 2000s and the coronavirus shock.

Even during the worst of the coronavirus pandemic, LEED-certified assets tended to have lower vacancy rates than other buildings, the report says. Since the first quarter of 2020, non-LEED occupancy dropped from 90% to 88% nationwide, the report says, with LEED-certified assets increasing their occupancy from 90% to 92% since then.

LEED-certified office properties also fetched 21.4% higher average sales prices over the past three years, Cushman & Wakefield reported, also noting that LEED buildings are still fairly niche, representing only about 2.5% of the total urban office inventory in the country.

Investor interest in LEED and other certified sustainable buildings is part of a larger movement toward ESG among real estate investors, the company said.

"In 2020, the average size of closed private capital funds with ESG commitments increased to $1.4B, a 16.9% increase over the previous year," the report says. "By 2023, 80% of investors intend to incorporate ESG into their strategy."

The primary focus among investors is on the environmental aspects of buildings rather than social or governance, since the former is easier to measure. The report analyzed LEED-certified buildings completed between 2010 and 2020 compared with noncertified buildings of the same vintage, with the comparisons controlled for class and location in cities or suburbs.

Other reports point to international investor interest in sustainable properties. The Royal Institution of Chartered Surveyors, or RICS, World Built Environment Forum's annual sustainability survey, which was published in late August, found that 55% of respondents said demand for sustainable properties had risen both among investors and tenants worldwide.

Europe saw the sharpest increase in demand, with 69% of respondents reporting an increase, RICS found. About half of respondents said that owners and operators of green buildings command rent and price premiums of about 10%.