On the Path to Sustainability

As the stories in this issue of REIT report, REITs increasingly are incorporating environmentally sustainable practices into their business models.

For the past several years, NAREIT has encouraged this trend through its Leader in the Light awards competition, which recognizes NAREIT member companies that have implemented programs which have produced significant, ongoing improvements in energy savings. NAREIT’s decision to adopt the Global Real Estate Sustainability Benchmark as the platform for the Leader in the Light awards, which is discussed in this issue, will increase the value of the program as a tool to help REITs gauge the effectiveness of their sustainability efforts, since it will allow them to compare their achievements with a larger field of peer companies operating around the globe.

Environmentally friendly business practices in commercial real estate today are an important and growing global trend.

Sustainability increasingly is being recognized not just as good stewardship of the planet’s resources, but as a business strategy that can improve the bottom line.
Overall operating costs for Leadership in Energy and Environmental Design (LEED) certified buildings are 8 percent to 9 percent lower than those of conventional buildings. Over the lifecycle of a building, these savings can more than offset higher initial development costs. Lower operating costs also increase a building’s net income, in turn creating the basis for a higher valuation for the property.

Additionally, there is a growing body of evidence that indicates buildings based on environmentally sound technologies have a greater appeal to tenants, giving owners of sustainable buildings an edge in securing higher rents and maintaining higher occupancy rates in a competitive rental marketplace.

Triple net lease tenants have an obvious motivation to gravitate to energy-efficient, lower operating cost building space. However, many tenants show a preference for sustainable building design for other reasons, as well. Building systems that increase fresh air intake and make extensive use of natural light provide a more pleasant and comfortable work environment that promotes employee productivity and increases job satisfaction and employee retention.

Corporate social responsibility demonstrated by a commitment to sustainability is increasingly important to investors, as well – especially to institutional investors in countries where sustainable business practices have been the norm for many years. And for the Socially Responsible Investing segment, which is estimated to account for more than 10 percent of total assets invested in the U.S. and Europe, an environmentally responsible footprint is a prerequisite for investment.

From the perspectives of cost containment, tenant satisfaction and access to capital, green technologies today make very good sense. That is why a growing number of REITs are on the path to sustainability.

DONALD C. WOOD
NAREIT Chair
President & CEO,
Federal Realty Investment Trust