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In 2008 Norm Miller and Dave Pogue were both presenting at a Greenbuild conference providing compelling evidence that demand for more sustainable real estate with greater energy efficiency, more natural light and better air among other traits was increasing and providing landlords with an incentive to better understand the features required of green buildings. Then and now, LEED, BREAM, DGNB, Energy Star, GRESB, and other measurement tools all aim at providing benchmarks to evaluate sustainable building features, systems and operations. The chance meeting of Miller and Pogue led to a conversation about the need to be able to measure productivity of occupants, the holy grail of judging whether spending more on rent for better environments was worthwhile. Landlords resisted enhancing buildings with improvements that saved only the tenant on passed-through utility bills, but if tenants could be convinced that better space paid off then higher rents were clearly possible. Higher rents justified better buildings. This quest for more definitive answers led to a number of studies, one presented in November of 2009, where Miller, Pogue and Wong presented a study titled “Do Green Buildings Make Dollars and Sense?”

In the 2009 study with 755 tenants responding, several interesting conclusions included:

  • Separate utility metering saved 21% on energy costs on average,
  • Green buildings provided better client meetings, enhanced retention of employees and made recruiting easier,
  • For those who felt productivity was higher in a green building the average increase in productivity was 4.8% or $20 per sq ft.
  • Lower sick time resulted in a productivity enhancement of $5 per sq ft.

With average rents at $31 per square foot, it seemed that the potential for productivity gains and less sick time to out strip rents was possible. Still, many tenants did not feel productivity was enhanced and most stated they were not willing to pay more in rent for greener buildings, however measured. Another study by Miller, Florance and Spivey in 2008 had suggested that tenants would pay more despite their survey responses to the contrary.

Fast forward and a new study, one that revisits the question of productivity is available “The Impact of Green Buildings on Cognitive Function” from the Harvard School of Public Health.

The study authors coined a new word “Buildingomics” defined as the totality of factors in the built environment that influence the human health, well-being and productivity of people who work in those spaces. The study included five metros and 109 participants in 10 office buildings, 6 of which were green certified. Several air quality measures were monitored along with noise and light. Workers in green buildings had fewer complaints about temperature, air quality and odors and were more satisfied with daylight and lighting. Most compelling was the very detailed scientific evidence on decision making. Occupants in greener buildings were better at critical thinking, crisis response, abler to focus on work and strategic decisions. Cognitive test scores were 5.4% higher in these green buildings and workers slept better at night. Applied to the average salary of the occupants and once again we find that the gains in productivity are nearly equal to the base rent.

The conclusions are very clear. Better buildings in terms of design, natural light and better air controls, are worthwhile for tenants as occupants who care about productivity. Such buildings, while commanding a slight premium in rent, are bargains compared with the benefits to occupants. Newer studies like the recent Harvard study are more scientifically based and better at providing links from better buildings to productivity, yet they confirm what others have sensed and reported in prior surveys. Skeptics remain but the bar on all new buildings continues to require better worker environments.

 

References

“The Economics of Green Retrofits” Norm Miller with Nils Kok and Peter Morris, presented at USGBC Greenbuild 2011 published in the Journal of Sustainable Real Estate, Vol. 4, (1) 2012

“The Operations and Management of Green Buildings in the United States” Norm Miller with Dave Pogue, Jeryldine Saville and Charles Tu, Journal of Sustainable Real Estate, Vol. 2, No. 1, 2010, pp. 51-66.

“Green Buildings and Productivity” Norm Miller with Dave Pogue. The Journal of Sustainable Real Estate, Vol. 1, No. 1, Fall 2009.

“Does Green Pay Off” Norm Miller with Jay Spivey and Andy Florance, The Journal of Real Estate Portfolio Management. Vol. 14, No. 2, 2008.

 

Top photo: © Getty Images / Pixelprof


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About Author

Norm Miller

Norm Miller, PhD is the Hahn Chair of Real Estate Finance in the University of San Diego School of Business and is affiliated with the university’s Burnham-Moores Center for Real Estate. Miller is also a faculty and board member at the Homer Hoyt Institute. Miller has driven a TESLA since 2012 and currently has a model with autopilot features. He has not moved further from work and does not intend to do so. His website is www.normmiller.net and he can be reached at nmiller@sandiego.edu

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