Searching for the Holy Grail of Green Real Estate

Lost in the debate over the value created by going green is what some have dubbed the “Holy Grail” of sustainable real estate.
Much of the analysis on greening real estate assets focuses on relatively easy-to-quantify metrics, such as the OPEX (operating expense) improvements to NOI by cutting water and energy use versus the CAPEX (capital expenditures) and who ultimately benefits from those investments. But that debate focuses on a small piece of the 5 percent to 7 percent of business OPEX tied up in real estate and ignores the largest expense of operating a business: the workforce. To some, the Holy Grail of sustainable real estate is discovering the true net-zero commercial building, but to me it is uncovering absolute proof of the productivity gains for those blessed to work in a green building.
It stands to reason that a healthier, more comfortable work environment might reduce absenteeism, improve worker satisfaction and contribute to a fitter workforce. Numerous studies have sought to quantify the workforce productivity benefits of green buildings, but the definitive analysis remains to be found, leaving this grail undiscovered in the eyes of both supporters and critics of green real estate.
It is a fact, however, that the U.S. workforce is much more productive today. According to the U.S. Bureau of Labor Statistics, worker productivity in nonfarm jobs increased approximately 40 percent from 1980 to 2000, but then increased another 40 percent from 2000 through the latest data available today. That surge in productivity roughly coincides with the emergence of green real estate into the mainstream real estate marketplace. Obviously, myriad factors contributed to this trend, but it does beg the question as to whether the increase in healthier workplaces has had a discernible impact on the rapid escalation in worker productivity over the past decade or so.

So I asked my friend, Christopher Thornberg, founding principal of Beacon Economics and one of the earliest predictors of the housing market crash and of the economic recession that followed, whether there was any correlation between the rise of worker productivity and the rise of green real estate.

“I don’t think from an economic perspective there is a productivity boost,” he concluded. “You might argue that a happy office is a productive office but these sort of psychological arguments have been largely debunked.”
That Chris provided a well-reasoned analysis exploring both external and non-external factors to support his conclusion rather than laugh at my question was my only surprise here. So I attempted my own non-scientific analysis into the potential productivity benefits of green real estate using the best information I could find. There have been a handful of attempts to quantify the productivity benefits of going green. One of the best, a 2009 study by the University of San Diego and CB Richard Ellis, found a $25-per-square-foot net benefit from increased worker productivity among tenants of green buildings. With 1.8 billion square feet of space certified under the U.S. Green Building Council’s Leadership in Energy and Environmental Design program to date, the potential economic benefit from worker productivity improvements translates to nearly $46 billion from LEED certified buildings. When you consider that LEED construction generated $830 million in GDP from 2000 to 2008 and the USGBC forecasts that LEED construction will generate another $12.5 billion in GDP from 2009 to 2013, that’s pretty good bang for your green buck.
Don’t bother poking holes in my analysis – I’ll be happy to do that for you. My intent here is to illustrate that the economic benefits of green real estate, beyond simply reducing water and power consumption, is potentially enormous. Building owners, who ignore this facet of sustainability, risk leaving money on the table at their next tenant negotiation or asset sale. Meanwhile, I’ll continue searching for the grail that finally proves beyond a doubt the productivity benefits of green real estate. I’ll let you know what I dig up.

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Michael Gottlieb
The Green Report
Van Nuys, CA
Michael Gottlieb is Managing Partner for Advanced Green Solutions, which provides low-cost, high-quality services to help commercial property owners, managers and tenants advance their sustainability objectives and add value to their real estate assets. AGS provides MilliCare Textile and Carpet Care services in Los Angeles, Orange, Riverside, San Bernardino and Ventura counties. Prior to founding AGS, Michael was an award-winning reporter, editor and columnist for Gannett Corp., Times Mirror, Tribute Corp. and the Daily Journal Corp. Most recently Michael was Editor of the California Real Estate Journal, Executive Editor of 8 small business publications located throughout California and an Associate Editor for the Los Angeles Daily Journal, California's leading daily legal newspaper where he oversaw real estate and biotechnology coverage among other areas. Michael also is a noted speaker and writer on real estate matters and is active in the California commercial real estate community.

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