Need to make a business case for building green or undertaking green retrofits? Or maybe you're a building owner mulling whether it's worth the effort to make your property more environmentally sound.
Fireman's Fund Insurance Company provides a list of the benefits of doing so -- and the risks associated with doing nothing. The list is a handy reference for experienced players and newcomers to green building.
Here's what the company, which was the first property and casualty insurance firm to offer green insurance for commercial buildings in the U.S., lists as the advantages and risks.
The Advantages to Building Green
• Green buildings generate an average increase of 7.5 percent in a building's value and a 6.6 percent improvement in return on investment, while decreasing operating costs by 8 to 9 percent, according to McGraw-Hill Construction.
• Higher revenue due to higher rents and occupancy rates. Vacancy rates of green buildings are lower than existing buildings. The CoStar Group found that LEED-certified buildings occupancy rate are 92 percent versus 87 percent for traditional buildings.
• Lower operating costs by reducing waste output and energy consumption. The Environmental Protection Agency found that green buildings with a recycling focus can reduce waste output by 90 percent and use 30 percent less energy, which equates to a five percent increase in net operating income.
• Attract and retain quality tenants. Improved indoor air quality in green buildings result in reduced absenteeism, and possibly higher productivity that could increase sales. Green buildings also make it possible to have government tenants.
• Better insurance risk. Green buildings suffer fewer losses and are safer to insure because of the commissioning process required to become LEED certified.
The demand for green buildings continues to climb, the company said, noting research last year by McGraw-Hill Construction that found the value of green building construction is expected to reach $60 billion in 2010, up from $12 billion in 2008.
"Green buildings can boost real estate owners' bottom line by protecting and building net operating income, attracting and retaining quality tenants and improving the environment," said David Cohen, senior director of real estate, Commercial Insurance at Fireman's Fund, in the company's material. "Simply put, green buildings create a triple net effect, benefitting the owners' bottom line, its tenants and the environment."
The Risks of Not Pursuing a Green Building Strategy
• Risk of obsolescence. As the U.S. Green Building Council certifies more and more buildings will traditional buildings be able to compete? Will the value of a traditional building decline and will late comers realize any first mover benefits? Green buildings are the future and are not a passing trend.
• Reputational and transactional risk. If a building isn't known as green it will experience lower occupancy rates and rents.
• Regulatory risk. Green is being incorporated into building codes at the local and state level. It can be complex as each city's standards are different. "In the future there may be federal mandates that existing buildings will have to adhere to," added Cohen. "Upgrading to green can anticipate these mandates and allow upgrades to occur on your terms."
• Pollution. Existing buildings are one of the biggest contributors to environmental pollution in the U.S., accounting for 40 percent of total energy use, 72 percent electricity consumption, 39 percent of the carbon dioxide emissions, and 13 percent of total water consumption, according to the EPA.
"The risks are clear," said Stephen Bushnell, senior director of emerging industries at Fireman's Fund. "Buildings that are not energy efficient or green will not be able to compete for the best tenants. Any building can become greener, often without a major capital expenditure."
Photo illustration composed with images courtesy of Fireman's Fund.