Fall 2008

Power of Ideas

Green Building Pays Greenbacks

Prof. John Quigley analyzes environmentally sustainable construction


By Pamela Tom


John QuigleyEveryone's talking about "going green," but in the building industry, the cost of investment has been difficult to justify — until now. Haas School Professor John Quigley has undertaken the first systematic analysis of environmentally sustainable construction and its economic impact on the real estate market.

In the working paper, "Doing Well by Doing Good? Green Office Buildings," Quigley and co-authors Piet Eichholtz and Nils Kok of Maastricht University, Netherlands, determined that investments in proven green building practices lead to sizable increases in a property's market value and effective rent, or the average per-square-foot rent paid.

Green-certified buildings produced an 8.5 percent increase in effective rent, Quigley found. The additional annual rent for going green amounts to almost $309,000, based on an average sized building of 342,000 sq. ft. Likewise, the incremental value of a green structure is an estimated $5.1 million more than an ordinary building. The study did not calculate the incremental cost of investing in green building practices.

Quigley, the I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy, decided to research the economic value of green-certified buildings "to see if this was hype or real." While Quigley's work concludes that the resulting profitability is real, he is continuing to research why green commercial buildings produce higher rents and market value by using engineering data from the Environmental Protection Agency.

Quigley's paper focused solely on commercial property. He first identified 694 buildings, green-certified by the federal government's Energy Star program or the private LEED (Leadership in Energy and Environmental Design) standard. The control group consisted of nearly 7,500 other office buildings within a quarter-mile of the certified buildings.

Quigley was surprised by the results. "If I were an owner of commercial property, I would investigate the cost of attaining an Energy Star rating. If that is at all a reasonable investment, I would think about doing it," he says.

His research offers quantitative evidence for builders and investors who value the social responsibility benefits of green buildings but, up to now, lacked data about the financial performance of these investments. In July, Quigley traveled to Istanbul, Turkey, to attend a conference in order to extend his study of the economic effects of green building to Europe and the Middle East. Quigley says, "Finding there is a linkage between energy and profitability of rental properties is potentially significant and leads to more extensive uses of this information."



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One of the buildings in Prof. John Quigley's study

This building at 100 First St. in San Francisco, which incorporates green building practices, is one of hundreds of properties included in Professor John Quigley's study.