What Is a “Leed Certified” Building, and Are Tenants Willing to Pay More Rent for One?
LEED (Leadership in Energy and Environmental Design) is a green building certification system that is internationally recognized and provides third-party verification that a community or a building was built and designed using strategies for improving performance across all the most important metrics: energy savings, CO2 emissions reduction, improved indoor environmental quality, water efficiency, and stewardship of resources. It can be applied to all building types — both commercial and residential.
LEED includes a point system to score green building construction and design. The system is categorized into five main areas: Sustainable Sites, Energy and Atmosphere, Materials and Resources, Water Efficiency, and Indoor Environmental Quality. Buildings get points based on how successful sustainable strategies are achieved. More points mean a higher level of certification, which range from Silver, Gold, to Platinum.
Leadership in Energy and Environmental Design is focused primarily on new, commercial buildings. The more points you get, the higher your rating will be. Getting the LEED status can require significantly higher costs on the part of a company or a builder but can also provide huge cost savings over time, including higher rents, state and local tax breaks, and many other perks.
It is certain that green buildings are becoming increasingly popular, and tenants are looking for more sustainable solutions. LEED certification will improve your building’s image and establish you as a green building leader. And because sustainable green buildings are more positively viewed in today’s market, you will be able to charge higher rates. These buildings are also cheaper to operate since they use fewer resources, like energy and water, and create less waste, which leads to decreased utility costs.
Since LEED-certified buildings are more affordable to operate, they are more desirable for residential and commercial occupants. They can also qualify for significant financial benefits, including incentives and tax rebates, which makes these green buildings an even better investment.
The preliminary research “Does Green Pay Off?” shows that energy-efficient buildings have higher occupancy and rental rates, while operating costs are lower.
However, the benefits of green buildings may not yet be obvious since tenants might need proof that this kind of investment will help them save money. A boost in productivity and lower operating costs lead to longer-term savings.
So why are these buildings more expensive?
LEED-certified buildings are usually new, and new buildings are naturally going to be more expensive than general market rents. And of course, a lot of these green buildings are luxury buildings. So it might not be just the ecological standards driving up the rents.
However, green buildings that did not seek the certification also earn more. This shows that people are willing to pay more for “green” buildings, whether or not a third party has certified their quality.
This naturally makes sense, as tenants of such units should expect savings on utility bills and will, therefore, be ready to pay more for an energy-efficient space.
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