Grey Space and Environmental Effects in CRE

Part
01
of three
Part
01

Build-Out Enviromental Benefits

After exhaustive research into current environmentally-sound (or "green") commercial building practices, it is apparent that there are higher up-front build-out costs, with the benefits of green construction being realized only after construction is complete. While green CRE advocates like LEED are hopeful that future advances will continue to close the gap, presently, cost-efficient build-outs tend to be detrimental rather than beneficial to the environment.

Costs and Obstacles to Green Construction Methods


Benefits of Green Build-Outs

  • LEED reports that the chief drivers of green construction are client demands (34%), environmental regulations (33%), and a desire for healthier buildings (27%).
  • Additionally, there are down-the-road benefits, primarily in energy-efficiency, which can justify the initial expense. These will be explored in a separate brief.

Research Strategy

As written, the project criteria appear to desire insights into how sustainable / green building practices may be more cost-effective in the initial build-out of a commercial building. Our initial round of research quickly found that our technology isn't yet at the point where green construction practices are more cost-effective than traditional — which is precisely why traditional construction practices are still so widespread. Rather, argue sustainability advocates, the gap in construction costs is closing and there are sufficient down-the-road benefits in, for example, energy efficiency (and, therefore, costs) to justify the additional up-front costs. As this aspect of green construction principles is to be explored in a separate brief, we will not reiterate the results here. Likewise, there are cost benefits to modular construction but this, too, is the subject of another brief.

It is important to note that some claim that there are building materials that are simultaneously less expensive and greener than traditional, but such articles always focus on home construction rather than commercial. Many of these materials, like bamboo and cork, are wholly unsuited to a commercial building (except, perhaps, in the interior facade), while others, like reclaimed wood and metal, may be more cost-effective for a person building their own home, but they are only low-cost because they are not currently being used at scale and therefore have low demand.

Since there is optimism in the green CRE community that the additional costs of green construction will continue to fall and one day reach parity with or even drop below traditional construction materials and techniques, we decided to shift gears a bit and explore whether there was any data regarding when and how that might happen; e.g., if a new building material had recently been developed in the lab which would be more green and less expensive than, for example, concrete, but simply had not reached the point of being deployed at scale. To this end, we searched Google's Scholar database and tech blogs.

We found several articles on new or in-development materials, many of which sounded very promising (this is a representative sample), but the fact that these materials were not yet deployed at scale means that while some (e.g., translucent wood) are anticipated to cost less up-front, there is as yet no real data to back those claims.

Having exhausted possible paths to even partial success, we concluded our research.
Part
02
of three
Part
02

Efficiency in Modular Workspaces

The benefits of modular construction in a commercial real estate environment can be boiled down into three main categories: increased efficiency in construction, lower energy costs, and reduced impact on the environment at the construction site.

There was little data that was isolated strictly to modular construction in purely commercial real estate (CRE) settings. We have therefore included some material that pertains to multi-family residential construction, deeming that the similar scales would result in similar benefits to the environment.

The Efficiency of Modular Construction

Note that the efficiency benefits of modular construction are expressed primarily in reduced costs. However, these costs and times translate into environmental savings via reduced waste. In addition, environmentally-sound yet cost-saving construction techniques form the purpose of another brief, but those details as they pertain to modular construction have been grouped here for thematic purposes.

  • Modular construction could claim as much as $130 billion of the US and European market by 2030, delivering $22 billion in annual cost savings.
  • Modular construction can reduce construction times by as much as 20-50%.
  • This would help to close a $1.6 trillion productivity gap (as of 2017) caused by labor shortages.
  • However, industry inertia, "including stakeholder resistance to new ways of structuring contracts and sharing risk," have slowed adoption of modular construction.

Energy Efficiency

  • As noted in a University of Florida (UFL) white paper, a controlled factory environment enables the creation of high-performance components joined together properly to increase energy efficiency, in addition to the greater energy efficiency involved in the manufacturing process.
  • McKinsey notes that one manufacturer achieved 25% energy savings after transitioning to modular construction.
  • Likewise, modular building manufacturers "such as iUNIT and Champion Modular Commercial have proven that it is possible to build new apartments to 50% energy savings below code" and up to 45% savings in retrofits.

Waste Reduction

  • A UFL white paper notes, "by building in a controlled environment, it is possible to create safer working conditions and reduce waste by promoting lean manufacturing," as well as decreasing habitat disturbance on-site, though precise measures of these benefits are not presently available.
  • On-site material waste can be reduced by as much as 90%, driven largely by eliminating the need to rework construction on-site due to defects.
Part
03
of three
Part
03

CRE Improved Spending on Sustainability

While high construction costs remain the primary impediment to green commercial real estate (CRE), the benefits of green CRE is making it a must for future construction and retrofitting. In fact, the top trigger for construction of green CRE is not the developers convincing their clients, but the clients demanding green buildings of the developers.

Operating Cost Savings

  • According to the US Department of Energy, simply adopting current energy codes could save "U.S. home and business owners an estimated $126 billion and avoid putting 841 million metric tons of carbon dioxide into the atmosphere through 2040."
  • The expected business benefits of constructing a new, green building result in the additional costs being paid back in an average of 7 years. These include:
  • The expected business benefits of retrofitting an existing building with green technology take only 6 years to pay back. These include:
  • LEED states that some LEED-certified buildings have reported operating cost reductions of almost 20% for new buildings and 10% for retrofits.

Social Responsibility

  • In addition, there are perceived social benefits to green construction, including encouraging sustainable business practices (75%), increasing worker productivity (59%), creating a sense of community (57%), and supporting the domestic economy by sourcing materials locally (53%).

Higher Lease Profits

  • Green CRE can also command higher rental prices; in a market report on CRE in Los Angeles, "while traditional (non-LEED certified) buildings receive an average of $2.16/ft^2, tenants were willing to pay $2.91/ft^2 for LEED certified space."

Health and Productivity

  • Harvard conducted an experiment in which participants were exposed to various conventional and green building environmental conditions and then, after a workday, given cognitive tests. In the results:
    • Green building conditions resulted in a 61% increase in cognitive ability.
    • Green building conditioned with enhanced ventilation resulted in a 101% increase in cognitive ability.
  • 90% of employees in LEED-certified buildings self-report being satisfied on the job and 79% say they would choose a job in a LEED-certified building over a non-certified building. Relatedly, "84% of employees prefer to work for a company that has a strong, concrete mission and positive values."

The Growth of Green Office Space


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