Sustainability is no mere trend for property owners and managers. It’s become a critical driving force that contributes significantly to a property’s impact on the environment, appeal to tenants, and the bottom line. But what is the ROI of investing in sustainability?
For starters, the ROI may be:
- Reducing energy consumption
- Optimizing HVAC management and operational costs
- Improving tenant acquisition and retention rates
And most properties see benefits beyond this list.
Continue reading for an in-depth examination of these benefits and to answer the question, “What is the ROI of investing in sustainability?”
Energy efficiency
According to the U.S Department of Energy’s Better Building Initiative, commercial buildings can reduce their energy use by an average of 20% with strategic sustainability practices and technologies, translating to considerable operational savings.
Upgrading energy-efficient lighting, HVAC systems, and appliances reduces energy consumption, decreases greenhouse gas emissions, and directly impacts utility bills. Over time, these savings offset the initial investment, thereby increasing the property’s ROI.
The ROI: 50% in total energy savings when implementing AI-powered technology to help manage HVAC systems.
Cost efficiency and optimization
Cool mornings and warm afternoons can result in outdoor temps that span 20 to 30 degrees. This results in frequent “comfort swings,” when tenants adjust the thermostat to offset the warm or cool outside temps. Some regions experience high humidity, causing your HVAC to run more frequently to keep building occupants comfortable.
Running your HVAC to meet these demands (and maintain tenant comfort) requires energy and lots of it. These costs eat away at your bottom line and hinder your sustainability goals. HVAC costs account for 50% of total energy consumption and 20% of CRE operating costs, according to research. And rising energy costs only compound this.
AI-based technology that can predict space temperature fluctuations, extend the life of equipment, and slash tenant comfort complaints has emerged as a low-cost way to deliver a massive ROI. An HVAC system powered by machine learning and AI can also help buildings qualify for key energy incentive programs, furthering ESG goals and improving the bottom line.
The ROI: $42k in energy cost reduction per year when implementing AI-powered technology to help manage HVAC systems.
Building appeal and value
Sustainable property management also increases the building’s appeal for tenants. More and more businesses are adopting environmental responsibility in their operations and are willing to pay premium rents for green spaces. Properties featuring natural light, enhanced indoor air quality, efficient energy, and water systems are becoming increasingly attractive. It can lead to improving tenant acquisition and retention rates, ultimately leading to higher rental revenues and thus elevating ROI.
According to the U.S. Green Building Council, LEED certified buildings have been found to command higher occupancies and rental rates compared to their non-green counterparts. On average, rent LEED certified buildings can command 11.1% higher rent than non-LEED certified buildings.
Further, sustainable buildings tend to have a higher asset value. JLL’s “Decarbonizing the Built Environment” report found that 63% of leading investors strongly agree that green strategies can drive higher occupancy, higher rents, higher tenant retention and overall higher value.
Lastly, investing in sustainability can mitigate the risk of obsolescence. Properties that are not energy efficient or do not meet evolving standards and regulations could potentially face legal liabilities or see their market value decline. Retrofitting these properties can be costly, so incorporating sustainable practices early on is a strategic financial decision.
The ROI: 10%+ higher rent for sustainable and LEED-certified buildings versus non-green buildings
Investing in sustainability (and more) to meet bottom lines
It’s fair to say there is a clear ROI of investing in sustainability for the development of your buildings. Especially as we roll into the new year, property teams are sure to be looking for additional ways to meet their bottom lines. Sustainability is just one way. There are additional ways CRE teams can implement additional practices at their properties for a better ROI.
To learn what those additional practices are and to see where your property stacks up, download the eBook, “The hidden ROI of efficient property management.”
