ULI: Going Green Can Increase Value of Old Office Product by $800K

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Looking to get more value out of your older office product? A new report from Urban Land Institute, BOMA International and the Rocky Mountain Institute found that green building and energy efficiency improvements can increase the value of an old office building up to $800,000.

The study, which focuses on upgrade strategies in Class B and C buildings, looks at how energy efficiency and green building upgrades add value to the properties.

“For the ambitious owner looking to reposition a Class B or C office asset into an A property, incorporating energy efficiency measures into renovations provides an opportunity to add long-term value via new building systems and improved operational efficiency,” the report reads.

The report examines several low- and no-cost “building-level” strategies to help class B and C office buildings add value. It also looks at a number of case studies of properties that utilized strategies like energy audits and green leasing to reduce energy use and improve overall sustainability.

For example, the report says that by implementing a combination of low- to no-cost energy efficiency strategies, properties can achieve a 15%–35% energy savings. Compared to business as usual, based on a 75,000 square foot building, that can result in up to $46,000 in reduced operating expenses, up to a 4.3% increase in net operating income and up to a $627,000 increase in property value.

By implementing energy efficiency strategies with green lease provisions that allow cost and benefit sharing between owners and tenants, property-level financial impacts are even more compelling. Based on a 75,000-square-foot building, that can result in up to a 1% higher internal rate of return over a five-year period, up to a 5.6% increase in net operating income per year and up to an $800,000 increase in property value.

A key strategy for implementing energy efficiency in a building is by executing upgrades during key renovation points, according to the report. Two key times for this are during acquisition, when owners are comprehensively reviewing the building and making investments and during tenant turnover, leading to renovation to support leasing efforts.

For example, if common areas are already being updated, an LED lighting changeout is a minor expense to bundle into the overall renovation budget. A more major efficiency upgrade that can be made during renovations is the addition of solar panels or window replacements. These upgrades can reduce energy use and increase building value.

“By pursuing a combination of these low-cost, high-impact strategies, owners can see increases in property net operating income of over 5% and value increases in the hundreds of thousands of dollars,” ULI states in the report. “Not to mention other benefits like improved tenant retention, easier compliance with regulations, and upside from repositioning opportunities. With this simple and streamlined menu of energy efficiency and green leasing solutions, it’s time for owners in this sector to start capitalizing on the untapped potential of their buildings.”

(From CONNECT Real Estate)