Green buildings market grows to $260bn

Construction of green buildings rose to 325 million m2 of new floor space in 2013, representing a US$260 billion market, according to Lux Research, with growth driven by economic benefits as well as environmental motivations.

The Cash Is King: Assessing the Financial Performance of Green Buildings report showed that growth has exceeded expectations as green construction marches toward a significant share of the mainstream market. In the United States, for example, green buildings command an estimated 20 per cent of new construction.

Alex Herceg, Lux Research Analyst and the lead author of the report, said: “Green buildings are driven not by utility savings, but by upticks in rental income or resale value. Those factors, along with government incentives, can make the financial case for green buildings, delivering predictable internal rates of return (IRRs) north of 5 per cent.”

Lux Research analysts studied utility savings, rental rates, resale value and government incentives in green buildings and their impact on IRRs.

The study found that buildings with LEED Gold certification outperform their baseline peers. For instance, higher rental income added US$4.1 million in value to a model 80,000 ft2 commercial building in Los Angeles.

The report also says that Incentives like Germany's subsidised interest rates for energy-efficient homes, or government cash rebates in India, can lead to an IRR of 5 per cent to 6 per cent over 15 years.

The analysts also found that energy efficiency codes offer a significant market opportunity. While green building standards like LEED helped build market demand for green buildings, building energy efficiency codes such as ASHAE 90.1, IECC and ECBC India can create a much larger market opportunity.

In Germany, Lux Research estimates that new floor space compliant with the EnEv 2009 code was 50 million m2, or about 36 per cent of overall new construction, in 2013.

The report is part of the Lux Research Efficient Building Systems Intelligence service.

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