Green building valuations tend to be higher than traditional building appraisals due to their instinctive characteristics which result in reduced operating costs, increased revenues, and minimized exposure to the physical and transition risks presented by climate change and pandemics.
These factors may result in having more credit assets and better collateral. According to International Finance Corporation (IFC) data, green commercial buildings have operating costs that are 18 percent to 37 percent lower than conventional buildings.
- Higher Rental Rates
Green buildings have 8 percent higher rental income and up to 31 percent higher sale premiums than traditional buildings, according to the International Finance Corporation (IFC) report Green Buildings: A Finance and Policy Blueprint for Emerging Markets.
Green buildings can provide state-of-the-art indoor environments while also lowering operational costs – increasing the property’s attractiveness. The higher marketability of the property provides investors and owners with justification to raise prices.
- Lower Operating and Maintenance Costs
Green buildings are more energy efficient than traditional buildings, which results in lower operational costs and increased revenue. It can also reduce exposure to the physical and transition risks posed by climate change.
LEED-certified buildings have nearly 20 percent lower maintenance costs than standard commercial buildings, and green building retrofits typically save nearly 10 percent on operating costs annually.
- Higher Occupancy Rates
Green buildings also have up to 23 percent higher occupancy rates, higher tenant retention, and lower vacancy rates.
Superior features found in green buildings exhibit improved market performance, which results in higher occupancy rates. This provides Investors and Developers with the relief of lower volatility in investment returns.
- Lower Yields
Among Aviso’s clients, green buildings provided lower yields (capitalization rates), resulting in a higher transaction price.
Green-rated buildings may lower risk premiums due to improved liquidity and lower legislative and obsolescence risks, which may support downward pressure on yields. Future legislation will likely require green building features. Moreover, more investors use Environmental, Social, and Corporate Governance (ESG) criteria as a screening tool, demand for green-rated buildings contributes to liquidity for green building operations. These effects lower the risk premium of such assets, lowering the cap rate or yield.
- Can attract higher profile tenants
The physical characteristics of buildings and indoor environments are more likely to attract high-profile tenants as it influences worker productivity, health, and well-being, resulting in their business benefits.
Green commercial buildings provide a healthier and more enjoyable working environment and have been shown to improve worker productivity in studies that included some social factors such as health and safety, compliance with legislation, occupant satisfaction, and productivity.
In the near future, however, all new buildings can be described as “green” as more green technologies and best practices are adopted by local developers. Even today, lots of new projects, while not necessarily described by their proponents as “green”, could have already been described as “green” a decade or so ago.
However, in the present economic environment wherein there is a relative oversupply due to post-pandemic corrections in the Philippine property market, there is a short-term prioritization on absolute cost efficiency wherein partial “greenness” makes sense but adopting higher standards of greenness may lower the bottom line. In the future, however, as efficiencies are gained in green building technologies and best practices, this implementation gap will eventually be bridged.
