How to Improve Real Estate Value with Investments in Sustainability

Delotte and Touche provides a compelling argument that sustainability has a direct impact on real estate value and marketability in their article titled "How to Improve Real Estate Value with Sustainability". As a result of their analysis, they concluded that there is a impact on IRR ranging between 98 to 220 basis points when a building owner invests in sustainability. With that said, even more interesting is the impact to expected IRR when a building owner chooses to do nothing.

“The takeaway for CFOs is that CRE companies can derive tangible benefits by embedding sustainability in their portfolio and asset management activities,” he says. “Furthermore, a lack of sustainability investments can impact their ability to sell those facilities later, enter into new leases and drive cost savings via improved energy and water efficiency."

Bob O’Brien, partner and global and U.S. Real Estate Services leader for Deloitte & Touche LLP

The Economics of Sustainability in Commercial Real Estate

In 2010, IFMA Foundation published a white paper called "The Economics of Sustainability in Commercial Real Estate". The purpose of the white paper was to determine why many building owners are not investing in sustainability and to debunk the misconceptions of the financial impact of investing in sustainability.

They classified retrofitting energy efficiency solutions into 3 groups:
1. No-Cost Improvements
2. Low-Cost Improvements
3. Signficant Cost Improvements

HVAC optimization and performance was listed as one of the recommended no-cost solutions... 

."According to a recent report based on several case studies, energy consumption for heating, ventilating and air conditioning (HVAC) can be reduced by 20 percent by detecting mechanical faults and ensuring systems operate correctly (NSTC 2008). Many cost savings related to HVAC can be made by changing operation procedures, which do not require retrofits. "


Utilizing a sensitivity analysis, they concluded that investments in sustainability had the most predictable impact on all key financial metrics (NOI, IRR, NPV, etc.) as compared to other retrofit projects such as cosmetic upgrades. 




The Quantifiable Impact of Sustainability on the Market Value of a Building

"The analysis showed an average 3% rental rate premium, 8% effective rental rate premium, and sales premium of 13% for Energy Star or LEED certified buildings".

An above is an exerpt from PWC's article titled "Key Sustainability trends driving business value in the real estate sector". PWC was successful in providing support for the expected impact in marketability and market value when building owners invest in sustainability.