Why Sustainability is Sustainable for Commercial Real Estate

Great post last week in RealEstateJournals.com engaging how and why sustainable buildings make sense for commercial real estate developers, investors and managers. Here's the initial tease from the post's author, Don Schoenheider, a vice president of Liberty Property Trust (NYSE: LYR), a $6.6 billion REIT:

Fifteen years ago the word “recycling” was something aging hippies did and a “carbon footprint” was what was left if you stepped too close to the fireplace and then walked on a rug. How times change: today both are top of mind for commercial real estate developers, brokers and tenants, and it is crucial to understand the benefits if you want to best serve your company or client.

Schoenheider believes -- and we concur -- commercial real estate development has forever changed on four important levels: building occupancy cost, employee productivity, customer relations and commitment to the future of business.

1. Occupancy cost. Sustainable buildings are first and foremost about efficiency – saving energy, saving water and keeping reusable materials out of landfills. Liberty has consistently demonstrated they can provide tenants with a commitment to a sustainable environment and save them money; at least $.15-$.30 cents – or more – a square foot in occupancy costs. Lower electric bills, lower water bills, lower gas bills … something they can easily (and happily) relate to.
2. Healthier buildings. Sustainable buildings tend to be healthier, meaning less time is lost to illness which translates into greater productivity and lowered employee turn-over.
3. Customer relations. Investors see the cost savings, employees see the health benefits, vendors see the opportunity to work with a progressive company and customers are actively looking for a commitment to the environment.
   
4. Sustainability: The future of business. Who will be the commercial real estate decision makers in just 10 or 15 years? Schoenheider posits. People who have grown up recycling, tracking that carbon footprint (and I don’t mean across the carpet), installing solar panels in their homes and driving hybrid cars. How will they view non-sustainable buildings? Just like disco (and grunge and ponchos and Ugg boots and …): obsolete.

Schoenheider wraps with a reflection of the past decade: We at Liberty remember saying in 2002 that a sustainable building was only expected to cost 10-20% more to develop than a standard building. Today as we approach break-even, the goal is to make them even less expensive to develop than standard buildings.

Companies like Liberty get it. The qualitative virtues of sustainable buildings are somewhat difficult to grasp; they're there, but they are intangible. However, there's no argument with the quantitative benefits. When you invest in making your real estate assets more efficient and sustainable, your NOI increases, asset values are bolstered, occupancy rates rise, and you can command higher lease rates. It's a sustainable path to the bank.