LEED application activity is still strong, buoyed by projects seeking LEED Existing Buildings : Operations and Maintenance (EBOM) certification. As of the beginning of the third quarter, 88 Bay Area projects have applied for LEED EBOM certification, as opposed to only 78 applications in all of 2008.
As the economy continues to falter, construction and leasing activity remain at a virtual standstill. Because of this, applications for LEED New Construction (NC), LEED Commercial Interiors (CI), and LEED Core and Shell (CS) certification have not increased at the levels previously expected. However, LEED application activity is still strong, buoyed by projects seeking LEED Existing Buildings: Operations and Maintenance (EBOM) certification. As of the beginning of the third quarter, 88 Bay Area projects have applied for LEED EBOM certification, as opposed to only 78 applications in all of 2008. The 88 existing buildings represent nearly half of the total number of LEED applications in the Bay Area; in 2008, only a third of all projects sought LEED EBOM certification.
With new available spaces coming to market daily, it is as crucial as ever for landlords to be able to differentiate their space from the countless others currently on the market. According to landlords and listing agents, LEED certification can help a building not only attract new tenants, but also retain existing occupants. Some evidence of this might be found in Sunnyvale, as both the Sunnyvale Business Park on California Avenue (516,894 sq. ft) and the Sunnyvale City Center at 100-190 Mathilda Avenue (468,710 sq. ft.) applied for certification during the quarter. The motivation behind these applications could partially be due to the rapidly increasing vacancy seen in the city. As of the end of the second quarter, office and R&D vacancy in Sunnyvale stood at 53% and 14%, respectively. Aside from attractiveness to tenants, the cost savings of “going green” are also attractive to landlords who are faced with a difficult economic climate; some landlords are undoubtedly pursuing certification for solely financial reasons.
This trend is not limited to Sunnyvale, or even the South Bay. In the first two quarters of 2009, many major San Francisco buildings filed with the U.S. Green Building council in hopes of obtaining LEED EBOM certification. Marquee properties such as the Embarcadero Centers (2,357,267 sq. ft.), 101 California Street (1,200,000 sq. ft.), 50 California Street (684,000 sq. ft.), 45 Fremont Street (594,000 sq. ft.) and 370 Third Street (400,888 sq. ft.) have all applied so far this year; these buildings represent only a handful of the 43 San Francisco properties to apply for LEED EBOM certification in the first six months of 2009. Although many landlords are still wary of spending additional capital in order to “go green” it seems as if many of the myths which stated that the costs of sustainable construction were prohibitive are starting to erode, as evidenced by the increasing number of LEED applications. According to the US Green Building Council and studies performed by UC Berkeley, UCSD and others, the costs of going green for new construction ranges from zero additional outlay to 6% of total construction cost, depending on the level of certification desired. For existing buildings (especially those built after 1999), the cost of applying for LEED is often limited to the fees associated with the certification process. In addition to the decreasing cost associated with sustainable construction, increases in the cost of electricity and natural gas accelerate the payback period on investments made by LEED applicants. Recently, Pacific Gas & Electric Company announced a planned rate increase of 6.5% by 2011, 1.4% in 2012, and 1.8% in 2013. Landlords, and possibly tenants, of buildings which are compliant with LEED standards will likely be less affected by utility rate increases. The increased participation in LEED suggests that many progressive landlords are exploring the process not only to save money in the long-term, but also to be better positioned in an evolving leasing market where tenants are more conscious of their impact on the environment.
According to brokers who specialize in tenant representation, tenants are not yet pushing landlords to pursue LEED registration. However, many believe that increased tenant demand for “green” space is on the horizon. As companies continue to market themselves as environmentally responsible, many are determining if the next step in reducing their carbon footprint is to move into a LEED or Energy Star certified property.
Read the entire report (pdf).
© 2009, CB Richard Ellis, Inc.