Green Is Good: The Impact of Sustainability on Real Estate Investment

Over the past 10 years, LEED-certified sustainable office buildings made up 29.7% of total office investment sales in the United States. This amounted to $357.4B in transactions. In this analysis, we set out to assess the premium in sales price on a per square foot basis for these sustainable office assets, as well as how cap rates differ between LEED-certified and uncertified products, and whether these differences fluctuate based on quality class, location (urban vs. suburban), or market type.

Our findings conclude that:

• LEED-certified Class A urban office sales generate a 25.3% per square foot premium over non-certified buildings, rising to 40.9% for suburban buildings
• LEED-certified Class B office achieve 77.5% premium over non-certified competitors
• LEED certification compressed cap rates relative to non-certified office by 40-80 basis points
• LEED-certified Class A suburban properties are undervalued when compared to a bottoms-up analysis

With 80% of investors intending to incorporate ESG into their strategy by 2023, we analyzed LEED-certified sustainable buildings in comparison to non-certified offerings to assess whether ESG-committed assets out-perform the competition.

In this report we dive into the findings of this analysis, concluding that:

• LEED-certified buildings averaged $4.13 or 11.1% higher rent than non-LEED certified buildings
• Construction costs to attain LEED certification can increase between 7.43% to 9.43%
• LEED-certified assets outperformed by at least 49 percentage points during both post-GFC and COVID-19 periods
• LEED-certified occupancy rate between Q1 2020 and Q1 2021 increased from 90%-92%, versus non-LEED occupancy falling from 90% to 88%.
• Over the last 3 years LEED-certified assets held a 21.4% higher average market sales price per square foot
• LEED-certified buildings make up 46% of urban deliveries in the last 10 years, despite accounting for just 2.5% of U.S. inventory