The economic benefits of green buildings

Submitted by: Margaret McKenzie, Friday, October 26, 2012

“Green buildings …. immunise the owner against future utility price shocks and against the high cost of retrofitting in a few years time,” said Brian Wilkinson, CEO of the Green Building Council of South Africa (GBCSA) at the 2012 GBCSA Convention in Cape Town .    Future proofing was highlighted by Wilkinson as a critical economic benefit of green buildings during the Convention.   Wilkinson’s presentation was based on a GBCSA report by Nicola Milne entitled ‘The Rands & Sense of Green Building’ that was published earlier in the year.

Wilkinson also forecasted that “you are going to see green building features and initiatives coming through in the investment mandates”.  He noted that green building rating systems provide a tangible method for investors to measure green interventions.   The final benefit highlighted by Wilkinson was “the ability of green buildings to attract and retain key staff” since environmental issues are increasingly a concern for young people.  

Reduced operating costs and increased value

Another benefit explained by the report itself is reduced operating costs.  South African green building case studies included in the report cited energy savings of between 25% and 50% in comparison to having designed the buildings to only meet the SANS 204 standards.  The report also predicts higher returns on assets and increased property values for green buildings in South Africa based on research that has been conducted in the US and Australia.  This research found that green buildings in those countries command higher rental rates and higher property value than their peers. 

Barriers to green buildings

With regards to the costs of green buildings themselves Wilkinson indicated that the perception of higher cost was a barrier to green buildings.  He noted that the research in GBCSA report showed that the perceived cost premium of green buildings was 17% but in reality the South African costs were much lower.   “Some of the early starters showed premiums of up to 10% but the more recent developments are showing pretty insignificant premiums [between] 1% and 2%” said Wilkinson.    The GBCSA report also detailed the submission costs associated with securing a Green Star SA rating.   For the case studies included in the report submission costs ranged from 0.26% to 1.7% of the total costs.  

Another barrier discussed by Wilkinson was the concept of spilt incentive.   Spilt incentive refers to the situation where the owner of the building pays for greening the building, but the tenant benefits from reduced service costs.  Wilkinson noted however that tenants consider occupancy as a whole and don’t differentiate between the amount paid to the landlord and the amount paid to utilities. 

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Margaret McKenzie