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1. GREEN VALUE
Green buildings, growing assets
A major collaboration into the study of building value by building green

2. GREEN VALUE HAS
SHOWN THAT THERE IS VALUE
IN BUILDING GREEN.

3. GREEN VALUE EXAMPLES
Rick Nevin and Gregory Watson found that people pay $10-$20 more for a home for every
$1 reduction in annual fuel bills.
The Heschong Mahone Group found that ‘adding skylighting to the average non-skylit retail store
would be likely to improve its performance by 40%’.
Pennsylvania Power and Light noted a conversion's electricity savings amounted to a payback in
4.1 years with a 24% return on investment. However benefits from lower absenteeism and higher
productivity meant a simple payback of just 69 days, a 540% return on investment.
At Wal-Mart’s Lawrence, Kansas, ‘Eco-Mart’ skylights were installed to reduce lighting costs.
Employees asked to be moved to the daylit part because sales were higher there.
Reno Post Office was renovated. The improved productivity gains paid for the entire
renovation of $500,000 in less than a year. The annual savings in energy use and maintenance
were a 'free bonus'.
Hyde Tools found that new lighting enabled workers to improve quality control by the equivalent
of $25,000 a year. Every dollar saved was thus worth $10 in improved sales: the retrofit was worth
$250,000 extra sales annually.
CABE's The Value of Good Design quotes a 21% improvement in hospital discharge rate from
a hospital renovation, effectively reducing total costs by 21%. It improved care quality, speed,
satisfaction and had spin-off benefits of lower drug use, reduced return visits and other factors.

4. WHY GREEN VALUE MATTERS
Buildings have a profound impact on the It’s my hope that this report spurs
quality of our lives and the world around discussion on what our future sustainable
us. They can enrich our communities, communities should look like, and how
health and well being, as well as support we can get there.
and enable business. They are a visible
Hon. Barry Penner
stamp of our culture on the environment.
Minister of Environment
Environmental sustainability matters Province of British Columbia, Canada
to British Columbia. As an example, in
2010, we are hosting the world's first
sustainable Winter Olympics and we
plan to encourage sustainable green
building practices, all based on strong
business principles.
Green Value is part of the journey
towards sustainability. It looks at the
financial value of green buildings and
how they contribute to a sustainable
community, balancing economics with
the environment.
01

5. SIXTY SECOND SUMMARY
This study, which looked at buildings
in North America and the UK, shows What is a Green building
that a clear link is beginning to emerge For the purposes of this study, green buildings are those that use resources
between the market value of a building efficiently, reduce waste and provide superior indoor air and other qualities.
and its green features.
What is Green Value?
Not only are green buildings good
Green Value is the net additional value obtainable by a green building in the market.
for the environment, provide healthier
places to live and more productive
places to work, they can command
The study concludes that green buildings can achieve greater value than their
higher rents and prices, attract tenants
conventional equivalents. But further, it found that the green building industry and others
more quickly, reduce tenant turnover
may be failing to get the message across that the main beneficiaries are occupants.
and cost less to operate and maintain.
But because comparatively few green For example because they are easy to measure, a lot of attention has been focused
buildings have been built, further work on energy savings. However, these are usually less than 1% of business operating costs.
will be needed to quantify more By comparison, total annual real estate expenses are usually around 10% of such costs
precisely the extent of the benefit. whilst staff costs can be as high as 85%. This means that the biggest return on
Additional study is needed on the investment should arise when green buildings improve business productivity.
effect of green building rating systems
Instances were found of green features improving productivity, but neither
on market value and the extent to
owners, developers, appraisers, nor the green building sector, fully value or communicate
which the benefits of green buildings
this advantage.
are shared between the occupier and
the owner. Both the real estate and green sectors would benefit from reviewing their focus and
working more closely together. While the benefits to asset value are compelling, they are
minor compared with the benefit to business. This benefit needs to be properly valued
and communicated. Then all can benefit from building green.
02

6. WHY GREEN VALUE?
With buildings being such a large Central to this is valuation and the
consumer of resources including 40% appraiser, who has to understand Green Value reviewed over 300 technical papers, books, articles, news releases and
of energy resources and a significant whether green buildings add value; yet other media items with indexed links to sustainability and value, and undertook case
source of pollution, the green building the real estate and financial sectors have studies for the following buildings:
movement has set about changing the not been widely engaged and the evidence • Green on the Grand, Kitchener, Ontario, Canada (office)
way we think. proving Green Value has been limited. In
• SAS Building, Toronto, Ontario, Canada (office)
this context, appraisers, developers and
Early exponents of green building • 260 Townsend, San Francisco, California, USA (office)
owners are sceptical and reluctant to
developments piloted new concepts
change habits. • Ottawa Paramedic Services, Ottawa, Ontario, Canada (office)
but they sometimes proved expensive.
Other early adopters and advocates However, if Green Value exists, then • Vancouver Island Technology Park, Victoria, BC, Canada (office)
lacked the financial background to this will eventually force market change, • Phillips Eco-Enterprise Centre, Minneapolis, Minnesota, USA (office/industrial)
prove the value of going green. Too often as competition will gradually make • Mountain Equipment Co-op, Montreal, Quebec, Canada (retail)
they tended to view green buildings traditional buildings uncompetitive. The
• Oberlin College, Oberlin, Ohio, USA (educational)
primarily as a technical innovation stakes are high because this will impact
issue, but if green buildings are to on existing assets that aren’t green. • CK Choi Building and Liu Centre, Vancouver, BC, Canada (educational)
become mainstream, they have to be • Cranberry Commons, New Westminster, BC, Canada (residential)
Against this background this report
financially viable. • The Solaire, New York City, New York, USA (residential)
has sought by means of a literature
Owners' and developers' prime review and case study assessment to • Conventional Housing Development, Wolverhampton, UK Midlands (residential)
motivation is usually profit and they address the hypothesis: “There is no • 'EcoHomes' Scheme, Wolverhampton, UK Midlands (residential)
tend to view buildings as financial relationship between the market value of
• Conventional Housing Development, Milton Keynes, UK
ventures which have to provide a return. a real estate asset and its green features
Southern Region (residential)
They generally borrow to finance their and related performance”.
buildings and lenders want to know • 'EcoHomes' Scheme, Milton Keynes, UK Southern Region (residential)
The case studies involved a qualitative
that loans are viable and secure. • Conventional Housing Development, Warrington, UK Northern Region (residential)
assessment of the impact on the value
However, although they may generate • 'EcoHomes' Scheme, Warrington, UK Northern Region (residential).
of green buildings in the USA, Canada
greater value in the longer run, green
and the UK, selected to provide a range
buildings can cost more up front,
of locations, building types and uses.
pressuring perceived viability.
Interviews were conducted with building
developers, owners and occupants
focussing on value benefits of their green
buildings compared with comparable
conventional buildings and translating the
benefits in terms of valuation.
03

7. FINDINGS
The Green Value study findings are The study confirms that the main value • Appraisal guidance and standards
Green buildings can: summarised here and detailed in a report is to the occupier and business, in health could be improved to cover green
• Be quicker to secure tenants and technical appendix available on and productivity. However, contrary to buildings features and related
• Command higher rents or prices www.rics.org/greenvalue some claims, this doesn’t necessarily performance more specifically
• Enjoy lower tenant turnover translate into higher asset value. • Leasing contracts should be changed to
The key focus of the study was value,
• Cost less to operate and maintain expressed in a way the real estate and The scale of productivity and health encourage tenants to reduce operating
in most cases financial sectors understand it. The report benefit is potentially enormous, and may costs and so contribute to ongoing
found that green features and their related exceed the value of all real estate green building performance
• Attract grants, subsidies and
other inducements to do with performance can provide extra loan expenditures (not just energy, operations • The integrated design process, a team-
environmental stewardship, security, additional income, higher rent, and maintenance but other costs such based approach for achieving green
increasing energy efficiency and shorter absorption or sales duration, lower as rent/mortgage as well). If developers, benefits without high cost, could be
lessening greenhouse gas emissions tenant churn or turnover, better rental owners and valuers can understand how to broadened to include valuers/appraisers
stability, higher occupancy rates and tap this benefit, the commercial advantage to help ensure that value is a
• Improve business productivity
reduced tenant inducements. In time that they would gain would become the consideration in building design, and
for occupants, affecting churn,
these advantages can be expected to most significant aspect of Green Value. that appraisals properly reflect the
renewals, inducements and fitting
enhance investment returns although the attributes of green buildings
out costs amongst others The study’s literature review found
evidence about the impact on asset value • Building codes and other regulations
• Benefit occupants to an limited valuation evidence for the link
is limited at present. Longer building life are holding back Green Value. They
extent that may even exceed the between green building features and
may in time also improve investment should be reviewed and changed
underlying asset’s value. related performance. A range of factors
yields for green buildings.
account for this and the study concludes: • Communication of Green Value to
Most of the claims of the green building occupiers must improve. This should
• Work is needed by the real estate,
movement seem to be valid, including focus on personalising the benefit of
financial, appraisal and green building
longer lifecycles, reduced non-renewable green buildings to occupiers, tenants,
sectors to improve how green building
materials use, reduced energy real estate agents, valuers and
value is appraised. Independent
consumption, and smaller ‘environmental appraisers
assessment and communication of the
footprint'. However green advocates’ • Accounting standards should move
value is desirable
claims of ‘increased value’ can sometimes to market valuation methods, currently
be misleading because cost savings are • Valuers and appraisers need better
advocated by many Accounting
often directly equated to improvements in impartial evidence of the value
Standards Boards. Cost approaches do
value despite the fact that the savings do generated by green features and
not properly value green features.
not always benefit asset value. There is a related performance. Gaining such
common misunderstanding of how value evidence would accelerate adoption
is determined. of green buildings
• Green rating systems need to take
fuller account of valuation issues.
This is key to demonstrating the value
of green buildings
04

8. GREEN OBJECTIVES GREEN STRATEGIES/FEATURES GREEN IMPACT THEORETICAL LINKAGE TO VALUE
Sustainable site development • Reduce site disturbance and soil erosion • Improved site aesthetics • Reduced development costs, improved KEY
during construction • Greater public support for the development marketability, reduced ongoing maintenance
• Use of natural drainage systems (e.g., swales) and accelerated local approval process, hence costs, improved natural appearance, higher * NOI: net
lower carrying costs. sales/rents, absorption and re-tenanting,
• Preserve or restore natural site features. operating income
NOI*/ROI** benefits.
• Landscape and orient building to capitalize on • Lower energy costs. • For gross leases, higher NOI. May have ** ROI: return
passive heating and cooling. impact for net leases*** if benefit can be on investment
demonstrated to tenants.
*** Net lease: a lease that
Water efficiency • Use captured rainwater for landscaping, • Lower water consumption/costs. • Lower tenant CAM**** charges. Direct NOI requires a leasee to pay all
toilet flushing, etc benefit for gross leases, potential for net leases
requires communicating benefit to tenants.
their operating costs resulting
• Treat and re-use greywater, excess
groundwater, and steam condensate from their occupation of
• Use low-flow fixtures and fittings (pressure- the premises.
assisted or composting toilets, waterless
urinals, etc.) and ozonation for laundry **** CAM: common area
• Use closed-loop systems and other water maintenance
reduction technologies for processes
Energy efficiency • Use passive solar heating/cooling and • Lower capital costs • Reduced operating costs, longer
natural ventilation • Occupant benefits life cycle, lower development costs Note:
• Enhance penetration of daylight to interior • Lower energy costs. • Improved occupant productivity, lower churn, To view a larger version of
spaces to reduce need for artificial lighting turnover, tenant inducements, etc
this table, please go to
• Use thermally efficient envelope to reduce • Higher net income for gross leased buildings,
perimeter heating and size of HVAC. improved yield.
www.rics.org/greenvalue
• Use energy management systems, monitoring, • Operational savings (can offset higher • Lower operating costs. On gross leases,
and controls to continuously calibrate, adjust, capital costs) higher ROI/NOI. On net leases, potential
and maintain energy-related systems. • Reduced capital cost of mechanical for improved ROI/NOI.
systems because control systems reduce the
need for oversizing.
• Use third-party commissioning agent to ensure • Lower operating costs • Marginally higher initial soft costs should be
that the installed systems work as designed • Lower maintenance costs. offset by long term operating cost benefits,
• Develop O&M manuals and train staff. higher ROI.
Indoor environmental quality • Control pollutant sources • Superior indoor air quality, quality lighting • Risk reduction
• Use low-emission materials and thermal quality • Greater marketability
• Ventilate before occupancy • Fewer occupant complaints • Faster sales and lets
• Enhance penetration of daylight and • Higher occupant productivity. • Improved churn/turnover
reduce glare • Higher ROI/NOI.
• Provide outdoor views
• Provide individual occupant controls
when possible.
Reduced consumption of • Select products for durability • Longer building lifecycle • Lower depreciation typically after higher
building materials • Eliminate unnecessary finishes and • Lower maintenance costs. investment costs.
other products • Lower construction costs, probable
• Reuse building shell from existing buildings lower operating/maintenance costs, higher
and fixtures from demolished buildings ROI/NOI.
• Use salvaged/refurbished materials
• Design for adaptability.

9. www.rics.org/greenvalue
For information contact:
mchambers@rics.org
green@astrics.com
The Royal Institution RICS Americas
of Chartered Surveyors The Chrysler Building
12 Great George Street 405 Lexington Avenue
Parliament Square Suite 2623
London SW1P 3AD New York NY 10174
United Kingdom USA
© 2005 Royal Institution of Chartered Surveyors
October 2005/50261/C.Schofield
Consulting team: Resource and support contributions from: