Is green-certifying your rental property worth it? That’s the question many property owners and developers ask themselves when it comes to their rental properties. Getting your rental property certified might seem daunting. However, you might be surprised to learn that 54 percent of multifamily builders are choosing to build 15 percent or more of their properties green — and that percentage is expected to rise to 79 percent by 2018.
Clearly, there are real advantages to green-certifying your rental properties. Here are a few:
8 Reasons to Green Certify Your Rental Properties
- Reduced operations costs. Case studies abound: It is a well-known fact that green buildings save their owners big money over time. One study found that green buildings showed a decrease in operating costs of 15 percent for new construction and 13 percent for retrofits over a period of five years, with payback times of eight and seven years, respectively. While landlords don’t always pay the utilities, they can often profit indirectly by charging premium rent for their green-certified units.
- Higher rents. Many people are willing to pay more to live in green properties. This is especially true for millennials, a prime market for apartment rentals. However, it’s possible to add green amenities to a property without investing in certification. Does certification really matter? According to one study, it does: LEED-certified units were found to command a rent premium of 9.1 percent, versus 4.7 percent for non-certified green properties over market average.
- Lower vacancy and turnover rates. Green-certified buildings tend to be located in walkable neighborhoods and are a lot more comfortable than conventional buildings because of their superior weatherization, lighting and ventilation requirements. This means tenants are more likely to renew their lease. One San Diego study found a 4 percent lower vacancy rate for green-certified buildings.
- Quality assurance. Having third-party inspectors on your building site may sound like a lot of red tape. Yet in the long run, investors who value quality appreciate the fact that green certification inspectors oversee every aspect of construction. Making sure everything is up to code not only ensures that the building will perform as expected, it also reduces the likelihood of experiencing the ongoing maintenance issues that plague many managers of non-certified buildings.
- Heightened interest from investors. It’s no secret that certified buildings consistently score higher for occupancy, rental rates, tenant retention and energy efficiency. In other words, green buildings are more profitable — a fact that is not lost on real estate investors. As Deloitte’s Real Estate Sector Leader Robert O’Brien puts it, “Going forward, adoption, measurement, and reporting of sustainability initiatives will be a business imperative, given the broader benefits on rental growth, yield premiums, total occupancy costs, asset values, and marketability.” However, green features alone are often not enough to satisfy conservative investors. Green certification offers proof that a building is what its owners and builders claim it to be. In addition, many companies these days operate under sustainability initiatives. Adding green-certified properties to its portfolio is an easy way for an investment company to comply with any social or environmental commitments its shareholders expect of it.
- Anti-greenwashing. “Green” is an extremely vague label and means different things to different people. While claiming a building is “green” may help boost sales initially, if the building doesn’t perform as expected, it may lead to backlash and accusations of greenwashing, or portraying a product as sustainable when it really isn’t. Green certification requires rigorous adherence to strict sustainability standards, and stands as uncontestable proof against greenwashing — therefore insulating owners and investors from what could become a PR headache.
- One of the lesser-known perks of green certification is that certified properties often qualify for financial incentives unavailable to their conventional counterparts. From easier financing to lowered insurance premiums to grants and loans, these opportunities can significantly reduce the real cost of construction and maintenance of green-certified buildings.
- Simplified code compliance. Many existing code inspections are automatically bundled into the green-certification process and are performed by the third-party certifying organization. This can streamline code compliance and tighten the price gap between certified and non-certified construction.
One important thing to keep in mind if you are thinking about green-certifying your property is that green building is best approached as a holistic exercise. Many so-called “costly” green upgrades — such as solar panels — work in synergy with one another and often prove to be quite cost effective when they are included in the building plan from day one, as opposed to simply tacking them on to a building that wasn’t designed with sustainability in mind. By incorporating green design and involving their certification team from the get-go, property owners can best assure that their certification efforts will pay off.