Demand is making a difference in march toward green buildings

It may seem that green buildings are everywhere in Houston, almost becoming the standard of construction. But certain major real estate sectors are only just beginning the move toward healthy and green buildings, says Morris Architects Project Manager Tim Murray, chairman of Houston U.S. Green Building Council.
He cites USGBC statistics that the greater Houston area currently has 114 building projects totaling 23.7 million square feet that are registered under the national Leadership in Energy and Environmental Design certification program, meaning architects, construction contractors and facility managers are following USGBC's guidelines to get enough points to qualify for bronze, silver, gold or platinum LEED status after completion.
"Of that green building total, over 48 percent is commercial construction," he says. "Another 25 percent of the registered projects are classified as multi-use."
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LEED has become the common standard for private commercial buildings.
"Developers understand that green buildings make economic sense," Murray says.
He cites the statistic provided by Andy Bergman, co-chair of the Greater Houston Partnership's Green Building Subcommittee, that 73 percent of Class A commercial projects planned or under construction are LEED-registered.
"No major developer wants to build the last 'standard' commercial building," Murray says. "Even speculative builders realize that a green building will bring more value and demand higher lease rates."
Existing buildings in the commercial market are also going green.
According to Murray, the Miller-Spivey report from the University of California, San Diego ranks Houston No. 2 in the nation in terms of the square footage of LEED- and EnergyStar-rated commercial buildings. The Institute of Real Estate Management-Houston Chapter recognized over 70 existing commercial buildings as achieving an EnergyStar rating in 2007.
"This shift results from owners looking for energy savings and tenants demanding green buildings for recruitment and retention purposes," he says.
Public buildings
The government is also taking advantage of the benefits of green buildings.
Locally, the City of Houston passed a Green Building resolution in 2004 and has since designed every feasible municipal project to the LEED standard -- over 20 to date.
"One of the earliest adopters of LEED was the federal government," Murray notes. "Most of the federal projects in the region are registered, the majority at NASA's Johnson Space Center. JSC has a LEED-certified building on campus and currently has 5 LEED-registered projects."
The higher-education sector has far fewer projects than other sectors, but still has 4 percent of the LEED projects, he says, adding that Rice University leads with five projects Lagging behind
Some markets -- health care, industrial, retail and multifamily -- lag behind, according to Murray.
§ Health care. "Houston has a huge medical real estate market. You would think that medical projects would quickly embrace the concept of healthy buildings," he says.
The Pearland Pediatric Building in Pearland is listed as one of the nation's 20 certified health care projects. But of Houston's 114 LEED-registered projects, only two are health care facilities.
One is Baylor's new Clinic and Hospital. Because of the facility's size, Houston's LEED health care facilities comprise 5 percent of the area's total LEED projects, much better than the national 1.9 percent.
"The health care industry is slow to warm to new methods for reasons ranging from cost to infection control," Murray says. "In addition, these buildings tend to be owner-occupied so there is no tenant market demand. And while green health care guidelines have existed for years, the LEED for health care rating system has not yet been formally released."
§ Industrial. Murray cites Colliers International statistics that the Houston area has 6.2 million square feet of industrial space under construction in the first quarter of 2008. Liberty Property Trust is developing two registered projects that equal 2.5 percent of the LEED list.
"Green projects are lacking," he says. "Industrial properties have been slow to accept green construction because even slight increases in construction costs can hurt competitiveness, and there is little precedent for how to 'green' this building type."
He notes that the drive to green industrial projects is led by large corporate tenants that demand green facilities as part of their sustainable corporate philosophies.
§ Retail. Retail is another dominating portion of the region's construction, yet is only 3 percent of the area's LEED projects, Murray says. He adds, however, that retail is often integrated into larger mixed-use commercial projects.
§ Multifamily. "Data on multifamily projects is hard to capture, since they are now so often included in mixed-use projects, but there are currently no stand-alone multifamily LEED projects in the Houston area," he says.
"The Houston market had just over $3 billion in building contracts in the first quarter of 2008, according to the Greater Houston Partnership," Murray says. "Green buildings are only just starting make to make a contribution to the built environment, and it is a movement that has tremendous room for growth."
Customer demand
Most large companies see sustainability as a major issue and are willing to pay a premium for space that meets sustainability standards, according to a recent international survey conducted by Jones Lang LaSalle Inc. and CoreNet Global.
Ninety percent of commercial real estate directors responding to the survey say sustainability such as the LEED certification maintained by the U.S. Green Building Council is a critical concern today, or will be within the next three years.
The survey queried 2,300 commercial real estate directors on four continents. Seventy-seven percent of those responding say they are willing to pay a premium in their occupancy cost to be in sustainable buildings, while only 22 percent expect to pay the same.
Thirty-eight percent of the survey respondents estimate sustainable buildings will cost 1 percent to 5 percent more than traditional buildings; 52 percent estimate the incremental cost at 5 percent to 10 percent; 22 percent estimated the premium at more than 10 percent. Those who focus on retrofitting existing buildings will see higher incremental costs than those engaged in new construction projects.
Respondents say a limited supply of green buildings is a widespread problem:
§ Only 17 percent say there are good, or widely available, sustainable real estate solutions in markets where their companies need to locate offices.
§ 42 percent say the supply chain is good in some markets but not others.
§ 41 percent views overall availability as limited or minimal.
"A company that wants to lease space in a LEED-certified building may have very few choices, if any, in the area where it wishes to locate," says Bruce Rutherford of Jones Lang LaSalle, Houston who is responsible for tenant representation and leasing operations throughout the region.
A building need not be LEED certified to be energy-efficient and environmentally friendly; however, LEED certification provides credibility that more and more owners value as a way to get credit for their efforts at sustainability, he adds.
Additionally, owners of existing buildings are considering renovations that can earn an existing building (LEED EB) or commercial interior (LEED CI) certification.
"It often turns out that a LEED silver or even gold is not out of reach," says Michael Novosad, a vice president for project and development services in the west region of Jones Lang LaSalle. "The equation is easy to calculate: Minimal cost of LEED certification, offset by higher rent and occupancy levels, equals more sustainable buildings in the near future."
Topping the list of factors driving corporate interest in sustainability are rising energy costs and the possibility of government regulation of greenhouse gas emissions, also known as carbon emissions, he says, citing USGBC statistics that buildings are responsible for 65 percent of all electrical usage and 30 percent of all greenhouse gas emissions.
Whether the cost of energy and sustainability is minimal or runs into the double digits, it's money well spent, Novosad adds.
"Benefits such as increased employee productivity and enhanced corporate image are not easily measured, but the energy savings are quantifiable and substantial, as much as 30 percent compared to traditional buildings," he says.
"We have passed the tipping point for sustainability, and the question is no longer about whether sustainable design should be considered," says Eric Bowles, vice president and director of research for CoreNet Global. "The question will be: How do you explain why you chose not to have a sustainable design?"
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