Austin, by most people’s standards, is considered an environmentally conscious city. In fact, Austin was ranked as one of the top 30 greenest cities in America by WalletHub in 2016. But just because Austin citizens care about the environment, does that mean Austin businesses are willing to pay more in rent for buildings proven to be environmentally friendly?
To dig in to this question we first started by deciding what would qualify as environmental certifications. For our purposes we used Costar’s definition, which includes buildings that have received either an Energy Star label or been dubbed LEED certified.
A building must meet certain standards to receive these certifications, ranging from saving water to conserving energy and using sustainable building materials. For example, the LEED certification assigns points values to buildings throughout the development process that are then used to assign a ranking. A “certified” building meets the minimum requirements of the LEED standards, while a “platinum” building has gone above and beyond to become a truly environmentally conscious addition to the Austin office market.
The Energy Star label is only given to buildings that conserve energy better than 75% of similar buildings nationwide, making it another good benchmark to compare properties with.
To find out exactly how environmental certification programs affect Austin office rental rates, we looked at the differences in our competitive set1 between buildings with a certification and those without. What we found seems to confirm the idea that construction of environmentally conscious buildings has a positive impact on office rental rates.
In our study, 35% of the Class A office buildings citywide were certified and boasted a rental rate of $3 higher on average. This indicates that tenants are, in fact, willing to pay more for office space in environmentally certified buildings. This is something that developers can keep in mind when deciding whether it is cost effective to pursue a certification for a project.
In addition, about one third of the rentable area in AQUILA’s competitive set delivered over the past 10 years came with an environmental certification, showing that developers are beginning to see the benefits of such certifications along with tenants and landlords.
We also broke our analysis down by submarket to see how environmental certifications affect average rental rates in different areas. The Far Northwest saw the largest benefit, with a rental rate of $2.91 higher for buildings with an environmental certification. The CBD and Arboretum also saw a benefit, with rental rates of $2.07 and $1.81 higher respectively.
On the other hand, Shepherd Mountain showed a lower average rate. While it is unlikely that environmental certifications are the sole driver behind these differences, it is still a major factor that should be considered.
Environmental certifications like LEED have a big impact on Austin office rental rates, and will likely continue to do so in the future. However, being environmentally friendly is not the only amenity tenants and landlords need to factor into their rental rates. To find out how other amenities play into the Austin market, check out our 1Q 2017 special report, Do Austin Office Buildings with More Amenities Capture Higher Rental Rates?
1AQUILA’s competitive set is comprised of the primary buildings in each submarket, and is used to track market trends. A list of our competitive set buildings can be found in our 1Q 2017 Austin Commercial Real Estate Market Report.
Featured Image: Aspen Lake Two is a LEED Certified building