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Indeed Tower

Study: LEED Buildings’ “Green Premium” is Real

The “green premium” for rents and values of LEED-certified buildings is real, Cushman & Wakefield says in part one of a new study.  While part two will delve more deeply into the pricing premium for sustainable properties, part one of the report makes the point that over an eight-year period, LEED-certified buildings performed 21.4% higher in terms of average market sales price per square foot. 

As for rents in LEED buildings compared to their non-certified counterparts, “the rent advantage is significant,’ the report states. “Since 2015, rents for LEED certified buildings averaged $4.13 or 11.1% higher rent than non-LEED-certified buildings.” 

The study took off from a Preqin report which found that by 2023, 80% of investors globally intend to incorporate ESG (environmental, social and governance) considerations into their strategies. Within the realm of commercial real estate, investors have focused primarily on the “E” in ESG, “mostly due to the existence of straightforward reporting metrics and the applicability of new sustainable technologies,” says Cushman & Wakefield. ‘To illustrate this, in AFIRE’s 2021 survey of cross-border investors, they asked respondents to rank ESG criteria by importance— four of the top five were related to environment.” 

Initially, high rents were accompanied by higher vacancies in LEED-certified properties. “However, this pattern may be a thing of the past,” says the report, prepared by Cushman & Wakefield’s Jacob Albers and David Bitner. ‘Since 2018, vacancies have fallen sharply for LEED-certified buildings with the result that LEED vacancy fell below non-LEED immediately preceding the beginning of the pandemic. The outperformance of LEED-certified buildings has only widened since then, displaying resilience as the larger office sector has faced headwinds.” 

Most recently, the pandemic has accelerated tenant demand for ESG assets. Since the first quarter of 2020, non-LEED occupancy in the U.S. has fallen from 90% to 88%; yet the occupancy rate for LEED-certified assets has increased from 90% to 92% over the same period. 

The report says there’s still time to capitalize on the advantages often enjoyed by early movers. At present, the U.S. has approximately 301 million square feet of LEED-certified Class A urban office space across 1,216 buildings.  

“This represents just under a third of all Class A urban space,” the report says. “The proportion is set to grow as LEED-certified buildings have accounted for 46% of deliveries in the past 10 years. In sum, investors who choose to make sustainability a key focus of their institutional office strategy face a market with significant and growing investment opportunities, though not so much that the LEED or sustainability premium is likely to be commoditized soon. The substantial number of non-LEED assets still in the market also suggest that there is an opportunity for investors to convert and upgrade existing stock to build out a more sustainable portfolio.” 

Pictured: Indeed Tower in Austin, recently acquired by Kilroy Realty for $580 million. The newly developed office property is seeking LEED Platinum certification.


Inside The Story

Cushman & Wakefield’s AlbersCushman & Wakefield’s Bitner

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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