Real estate development is an inherently non-sustainable practice, but assets that are developed using the highest possible approaches to sustainability tend to experience reduced operating costs, attract premium tenants, and enhance property values through outsized investor appetite. The Steers Center for Global Real Estate at Georgetown’s McDonough School of Business aims to provide students with a factual understanding of the sustainability aspects of real estate investing in a way that will allow the next generation of real estate investors to be better informed and equipped to lead an asset class that contributes roughly 40% of global greenhouse gas emissions.

3 Reasons Sustainable Commercial Real Estate Yields Higher Returns

1. Energy Efficiency and Cost Savings
   Sustainable buildings are designed with energy efficiency in mind. Features like advanced insulation, energy-efficient lighting, and smart HVAC systems lower utility bills. These savings increase net operating income, enhancing the property’s overall return on investment (ROI).
2. Increased Property Value
   Green buildings often command higher market values. Sustainable features like renewable energy installations and green roofs not only extend the building’s lifespan but also make it more attractive to buyers and investors. As a result, property values can increase, offering a better ROI.
3. Attracting and Retaining Tenants
   Today’s tenants prioritize sustainability. Businesses committed to corporate social responsibility seek more sustainable spaces that align with their values. Sustainable buildings can have lower vacancy rates and charge higher rents, contributing to a more stable and attractive investment.

Reducing Risk Through Sustainable Real Estate

Sustainable investments help mitigate several risks:

• Environmental and Climate Risks: Sustainable buildings are better equipped to handle extreme weather events. Using resilient materials and designs reduces the risk of damage and associated repair costs.
• Regulatory Compliance: Governments are increasingly enforcing environmental regulations. Investing in more sustainable properties helps to ensure compliance, avoiding fines and penalties. Adhering to environmental standards also enhances a company’s reputation among stakeholders.
• Market Fluctuations: More sustainable properties are less susceptible to market downturns. Their energy savings and tenant appeal make them more stable investments during economic uncertainties as tenants tend to seek these spaces out when making leasing decisions.

Meeting the Growing Demand for More Sustainable Real Estate

Consumer preferences are shifting toward sustainability:

• Changing Consumer Preferences: Many consumers are willing to support businesses that prioritize environmental responsibility. This trend extends to real estate, where tenants may prefer buildings that reduce their environmental impact.
• Corporate Social Responsibility (CSR): Companies are adopting CSR policies that emphasize sustainability. Occupying green buildings helps businesses meet their CSR goals and improves their public image.
• Government Incentives and Policies: Tax credits, grants, and subsidies are available for sustainable building projects. These incentives make sustainable real estate more financially attractive and can help offset initial costs.

Strategies for Improving ROI in Green Buildings

To maximize returns on more sustainable properties, consider these strategies:

1. Integrating Renewable Energy Sources
   Installing solar panels or wind turbines reduces reliance on the grid and cuts energy costs. Generating clean energy on-site can significantly lower operating expenses over time.
2. Optimizing Water Efficiency
   Implementing low-flow fixtures and rainwater harvesting systems conserves water and reduces utility expenses. These measures address global water scarcity issues and appeal to environmentally-conscious tenants.
3. Using More Sustainable Building Materials
   Selecting recycled or locally sourced materials reduces construction costs and environmental impact. Sustainable materials often require less maintenance, resulting in long-term savings.

The Future of More Sustainable Commercial Real Estate

Advancements in technology and industry collaboration are shaping the future:

• Emerging Technologies: Innovations like smart building systems and energy storage solutions are making buildings more efficient. The integration of Internet of Things (IoT) devices allows for real-time energy monitoring and optimization.
• Building Certifications: Certifications like Leadership in Energy and Environmental Design (LEED) and WELL Building Standard enhance a property’s marketability. Certified buildings are recognized for meeting high sustainability standards, attracting premium tenants.
• Industry Collaboration: Partnerships among developers, investors, and policymakers promote the sharing of best practices. Collaborative efforts accelerate the adoption of sustainable strategies across the industry.

At Georgetown McDonough, we recognize the importance of sustainability in commercial real estate. Our commitment to educating future leaders includes emphasizing the financial benefits of sustainable practices. By investing in more sustainable properties, businesses may achieve higher ROI while contributing positively to the environment.