Commercial Real Estate Frontline

Green, Green, Green. It seemed to be all the rage last year as oil prices spiked to $140/barrel and people were trading in their SUV’s for economy class hybrids.  Something else happened.  Fortune 500 companies and the U.S. Government felt the effect and instituted policies that they, too, should be green, work to stem global warming, and make changes to their business practices that were environmentally sound.

These decisions rippled into 2009 and have shown up in the commercial real estate market.  According to CoStar researchers, the best possible investment you can make in your commercial real estate is to either go LEED or get the Energy Star label.

5 years of national office leasing data suggest that Energy Star Certified properties are leasing for significantly higher rents.  In 2004, national  office rates for non-Energy Star properties was $24/SF.  Energy Star Certified Properties were leasing for $2/SF more than their peers.  On a 100,000 SF building, that differential on a 8.5 CAP rate equates to roughly $2.3M in equity.

2009 data are even more compelling.  That same Energy Star Certified 100,000 SF building is leasing for $4.75/SF more than its peer today.  That differential on a 8.5 CAP rate equates to roughly $5.9M.

Here’s the good news: a preliminary Energy Star study costs about $3,000.

So long as demand for these properties outstrips supply, these trends should continue. They won’t, however, last forever as more investors catch on to this new information.

About the Author:Jeremy Cyrier is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty.  He offers advisory services and brokerage expertise to commercial real estate owners and tenants.
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