Driven by Higher Rents and Values, Green Buildings Market Grows to $260 Billion
Construction of green buildings rose to 325 million m2 of new floor space in 2013, representing a $260 billion market, according to Lux Research, with growth driven by economic benefits rather than environmental motivations.
Growth has exceeded expectations as green construction marches toward a significant share of the mainstream market. In the United States, for example, green buildings command an estimated 20% of new construction.
“Green buildings are driven not by utility savings, but by upticks in rental income or resale value,” said Alex Herceg, Lux Research Analyst and the lead author of the report titled, “Cash Is King: Assessing the Financial Performance of Green Buildings.”
“Those factors, along with government incentives, can make the financial case for green buildings, delivering predictable internal rates of return (IRRs) north of 5%,” he added.
Lux Research analysts studied utility savings, rental rates, resale value and government incentives in green buildings and their impact on IRRs. Among their findings:
- Green certification fuels growth. Lux Research’s analysis found that buildings with LEED Gold certification outperform their baseline peers. For instance, higher rental income added $4.1 million in value to a model 80,000 ft2 commercial building in Los Angeles.
- IRRs get a boost from subsidies. Incentives like Germany’s subsidized interest rates for energy-efficient homes, or government cash rebates in India, can lead to an IRR of 5% to 6% over 15 years.
- Energy efficiency codes offer market opportunity. While green building standards like LEED helped build market demand for green buildings, building energy efficiency codes such as ASHAE 90.1, IECC and ECBC India can create a much larger market opportunity. In Germany, Lux Research estimates that new floor space compliant with the EnEv 2009 code was 50 million m2, or about 36% of overall new construction, in 2013.