Green Buildings and Energy Efficiency

With energy prices forecast to rise for the foreseeable future and increasing interest in environmentally responsible "green" buildings, it is critical that such buildings be energy efficient; unfortunately this is not always the case. Because a building can gain green certification based on environmental factors other than energy efficiency, a building certified as green may actually not be any more energy efficient than a typical, non-green building.

When considering the green attributes of a potential investment property, energy efficiency should come first–it should provide the cornerstone of a property's green rating and be of paramount consideration to any investor undertaking a green real estate purchase or development. Energy efficiency is important not only because of the environmental concerns surrounding energy use, but because among all potential environmental facets of a green building it provides by far the most economic return. Cash flow and profitability resulting from building green are largely derived through energy savings.

The Energy Factor

Commercial buildings account for 18 percent of total U.S. energy consumption and contribute an estimated 15 percent of U.S. greenhouse gas emissions. When considered over a building's 40-50 year lifespan, the energy-related environmental impacts of a building's operations dwarf the impact of energy and fossil fuels consumed during its construction. Reducing a building's energy consumption has a major beneficial impact on the environment, a point not overlooked by the National Association of Real Estate Investment Trusts (NAREIT), which recognizes the significance of energy-efficient buildings through its environmental awards programs.

Energy consumption represents 30 percent of typical commercial office building's operating costs, making it the single largest controllable cost of operations, so improved energy efficiency has a direct and substantial payback for investors. For example, a 30 percent reduction in energy use (commonly achievable in the average commercial office building) can yield the equivalent of a 5 percent increase in Net Operating Income (NOI) and overall asset value. The U.S. EPA estimates that the 2,500 buildings that have earned the ENERGY STAR label for energy efficiency through 2005 save a combined $350 million on their energy bills when compared with similar buildings having average energy consumption. Consequently, one of the strongest selling points for green construction is reduced operating costs from increased energy efficiency. In fact, much of the "business case" for green buildings is founded on the assumption that a certified green building will be more energy efficient that a conventional building. However, this assumes that all certified green buildings have scored meaningful points for energy-efficient design and actual energy performance.