This Issue

The Business of Being Green

green-economy
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By Alexandra DeLuca

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Disclosure requirements and energy audits make New York City a first-tier “green” city.

A look at green building adoption in
Chicago, New York, and Washington, D.C.

 

Whether you get your hot dog from a cart in Manhattan, “drag it through the garden” in Chicago, or order one at Ben’s Chili Bowl in Washington, D.C., you are stopping for a snack in one of the nation’s green building apexes.

“Each of these three cities is an example of a strong sustainable market,” says Dave Pogue, global director of Corporate Responsibility at CBRE, which published its “National Green Building Adoption Index” in June of this year. The index aims to measure the growth of green building certification—either EPA’s ENERGY STAR program or the U.S. Green Building Council’s LEED—for the top 30 U.S. commercial markets over the past 9 years.

But like their culinary offerings, Chicago, New York, and Washington, D.C. have marked differences in how and why their real estate sectors have adopted sustainability. “Chicago is the most dynamic of the markets,” Pogue says. “It has really embraced green building practices more than average.” More than two-thirds of Chicago’s square footage has one or more green building certifications, placing the city number three in the index. This was a surprise, says Pogue, due to the immense size of the metropolis, but the reasons why are multipronged.

“Chicago is a first-tier city,” he says. “They have very large buildings and very large corporations. There are civic ordinances requiring certain disclosures such as ENERGY STAR scores.” While green certification used to mean you were ahead of the pack, these days it is something you must maintain to stay competitive, he adds.

In Washington, the capital’s well-known building height restrictions kept them lower in the rankings, which measured percentage of space rather than number of buildings—at eighth place. But the nation’s second largest commercial office market—second only to Manhattan—has more than 40 percent of certified green space. “D.C. has adopted green building,” says Pogue. Much of that has to do with the U.S. General Service Administration (GSA) comprising the bulk of its tenant base and occupying ENERGY STAR-labeled buildings. “Buildings want to lease to the number one tenant in the city,” he says. “There are also lots of institutional owners. They tend to go for certification more than private owners.”

In terms of ordinances supporting green buildings, no one ranks higher than New York City, says Pogue. “They were the first. They have disclosure requirements and energy audits that buildings have to do. It’s not just disclosure—it’s physical action. Clearly a first-tier city,” he adds. Again, the high institutional owner base is sophisticated, though New York City does not have the active government or technology tenant base of other cities like D.C. and San Francisco. In terms of percentage of green space in a market, Manhattan ranks 12th.

Chicago, New York, and D.C. remain three of the most dominant cities in America——but there is concern about abatement.

“We are concerned that we may have had hit a peak because so many of these buildings have become ‘sustainable,’” says Pogue. “In some of these cities, particularly in Chicago, a high percentage of real estate has attained these certifications. The challenge is: How do you maintain and how do you add to a very large base?”

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More than two-thirds of Chicago’s square footage has one or more green building certifications.

Nick Stolatis, senior director of Global Sustainability & Enterprise Initiatives, Global Real Estate, at TIAA-CREFF, says, “I think all three cities are maintaining momentum. It’s a steady process and that is really what we want to see—the long-term commitment is important. More and more owners and more and more managers are getting on board. The tenants are sophisticated enough and more and more of them are asking what they are doing.”

It’s how TIAA-CREFF approaches its $86 billion of assets under management. “I would argue that all of it is being operated under sustainability for the long movement. In our global real estate initiative, there are three key principles we apply: conservation of energy, reduction of waste, and benchmarking our assets.”

Pogue points out that it is important to remember even a decade ago was a very different time for green certification. There was little adoption of ENERGY STAR program and LEED was still in its infancy. “Fast forward to 2013/14, and we have found a dramatic uptake of these certifications in particular markets.” In 2015, it means that growth in the 30 largest markets continues, but at a slower pace—indicating that many of the buildings that can get certification have sought it.

So what’s next? “That is the question we have asked ourselves,” Pogue says. “Here is a giant city like Chicago, where two-thirds of its buildings are green. How are you going to the next tier? This is where the problem lies.”

The problem can be better understood in terms of building size. More than half of all buildings over 250,000 square feet are currently certified. This represents 67 percent of those buildings’ total square footage. The figures are 62 percent and 76 percent, respectively, for buildings over 500,000 square feet. Compare this to buildings under 100,000 square feet, where less than 5 percent of buildings have a certification, which comprises 7 percent of their total square footage.

“This is a big buildings phenomenon,” says Pogue. “It’s skewed toward large buildings.

“The industry needs to understand how to get the message to smaller owners,” he adds. “This is trench warfare—hand-to-hand combat.”

“Size is definitely has an advantage,” says TIAA-CREFF’s Stolatis. “Office buildings tend to have more opportunities for the landlord to save energy and money. That isn’t to say smaller buildings can’t be improved. Our approach is, we want to engage with those residents to advise and help them reduce their cost.”

Energy costs may be a good starting point with smaller building owners, especially in less positive economic times. “When we get into a touchy market again—and we will—that may be when smaller building owners do it,” says Pogue.

“It has to do with economics,” he adds. “For buildings who have not previously participated, the next downturn may be the next opportunity.”