Leasing and Housing Markets get ready to go Green
Elizabeth Yip for The Lawyers Weekly
December 11, 2009
Buildings have an enormous carbon footprint. They consume 33 percent of Canada's annual energy production and are responsible for 35 percent of our greenhouse gas emissions. In response, developers are changing the way buildings are constructed and operated.
Different segments of the market respond differently to environmentally sustainable practices. Many office tenants have embraced these initiatives, while retail tenants are generally not as enthusiastic. Home buyers like green features, but often are not willing to pay a premium for them.
How to build green
Green building rating systems and programs, the most well known being LEED (Leadership in Energy and Environmental Design), help developers construct new buildings using sustainable practices. Developers earn points in categories such as sustainable site, water and energy efficiency and materials selection and indoor environment quality. Following construction, the documentation is submitted to the Canada Green Building Council for review and certification. Developers can achieve four different LEED levels: certified, silver, gold and platinum.
One drawback with the LEED process is the cost of the certification process, which can add substantial soft costs to the project. However, the designation provides the developer with a green seal of approval, which is an advantage when leasing or selling the building.
Tony Astles, executive vice-president of Bentall, a real estate investment advisory and services organization, says his company aims at LEED Gold as a minimum standard when constructing new office buildings. Many of the tenants that landlords want to attract to high-calibre buildings are institutions and corporations that have corporate social responsibility mandates to reduce their impact on the environment. For these tenants, signing on to a LEED-rated building is an easy and often mandatory decision.
Green buildings generate lower water and energy consumption. The resulting reduction in operating costs is passed on to tenants. New technologies used in green buildings decrease the risk of obsolescence. These factors (plus the increased interest from tenants) all make an economic case for building green.
A 2008 study by CoStar, a real estate information company, shows that green buildings make good business investments: these buildings outperform their non-green peer assets in key areas such as occupancy (4.1 percent higher), rental rates ($11.33 more per square foot for LEED buildings) and sale price ($171 more per square foot for LEED buildings).
To address the demand from tenants, landlords of existing buildings are introducing conservation and waste reduction measures such as recycling and installing energy metres that do not require major capital outlay.
The Building Owners and Managers Association (BOMA) launched the BOMA BESt certification program to evaluate the environmental performance and management of commercial buildings. This has become a popular tool for landlords to improve environmental practices in existing buildings.
According to Alan Lee, director of engineering at SmartCentres, many of their anchor tenants are already investing in very energy-efficient store design and construction in order to keep operating costs down. However, certification to a standard such as LEED has not been common due to a lack of demand from retailers and price-sensitive shoppers whose visits to the shopping centre are of relatively short duration compared to the time spent by office workers and residents in their respective buildings.
While there is little demand from shoppers, municipalities do often look for shopping centre developers to adopt certain green features as part of their projects.
To the average home buyer, price and location are the major considerations in selecting a new home. All other factors being equal, most home buyers will probably not pay more for sustainable housing.
Gordon Harris, CEO of the SFU Community Trust - the master developer of UniverCity, the model sustainable community adjacent to Simon Fraser University - agrees that the community must have other attractions in addition to sustainability. UniverCity offers green amenities such as a discounted transit pass. Now in its third year of operation, the program is subscribed to by 50 percent of UniverCity residents.
Roger Navabi, president of Qualex-Landmark, a 2007 UDI award winner with its project Pomaria, notes that the LEED program was primarily designed for commercial buildings. LEED has since adapted its program to better accommodate residential buildings.
In UniverCity, developers are required to adhere to the trust's development guidelines and requirements, which ensure sustainable building practices for the local context, rather than following the LEED process. Dale Mikkelsen, manager of planning and sustainability of the trust, finds that once a developer builds green, the costs for the next green project decrease as the process is duplicated.
Whether or not home buyers demand sustainable homes, municipalities require developers to meet LEED or equivalent standards. For example, the City of Vancouver intends to upgrade the city's current policy of requiring LEED Silver when private buildings are rezoned to LEED Gold in 2010.
Office landlords and tenants are at the forefront of the green building movement in Canada. As municipalities mandate sustainable building practices, retail and residential developers and consumers may have no choice but to catch up.
Elizabeth Yip is a partner in the Vancouver office of McCarthy Tétrault, practising in the Real Property and Planning Group. She has worked with all the developers referenced in this article and has been involved in green projects such as UniverCity, Broadway Tech Centre and Pomaria. You can contact Elixabeth Yip by sending an e-mail.