Green Retrofit Report Predicts New Industry Direction

October 29, 2009 Updated: October 29, 2009

NEW YORK—Green retrofitting is on the rise and America’s old buildings are set to become the biggest attraction for the building industry in the next five years, according to a report by McGraw-Hill Construction.

Today, green building comprises 5 to 9 percent of retrofit and renovation market activity by value, said the report. This number is projected to grow to 20 to 30 percent in five years—meaning major retrofits costing more than over $1 million are expected to top $10.1 to 15.1 billion by 2014.

“With 76.9 billion square feet of existing building stock and a number of inefficient buildings, green building has a tremendous long-term opportunity to dramatically reduce U.S. energy consumption and greenhouse gas emissions,” stated the report.

This stock includes some extremely inefficient buildings, particularly buildings constructed after 1970, which comprise 60 percent of the stock.

Almost half of the owners surveyed stated they do not know how to measure their return on investment (ROI), but on average, owners expected a 19.2 percent return. The result is a striking departure from the results of other studies regarding new green buildings, said the report, citing an earlier study where owners only anticipated an 8.1 percent increase in ROI.

Most owners expect to be able to charge a modest amount extra for rent due to the green retrofits, while 50 percent of tenants say that they will not pay more.

The top business motivation for retrofitting is the direct financial benefits of the retrofit itself—not the expected desirability of the space to tenants, the McGraw-Hill study found. Most owners cited lowering the building lifecycle costs as an attractor to retrofitting, followed by higher ROI, and improved tenant satisfaction.

“Nearly 80 percent of owners and tenants most often cite improved health and well-being of building occupants/employees as their top social motivator for going green in retrofit and renovation projects,” the report states.

A study conducted in Melbourne, Australia, on productivity in a green law office found a 39 percent reduction in average sick leave days, a 44 percent reduction in the monthly average cost of sick leave and a 7 percent increase in lawyers’ billing rates.

Both tenants and owners want to be seen as being environmentally friendly as well as encourage sustainable business practices.

Types of Green Retrofit Activities:

All owners report installing more energy-efficient lighting or making more use of natural light.
92 percent of owners installed energy-efficient mechanical and electrical systems.
71 percent installed more water-efficient plumbing.
61 percent upgraded the building envelope.
79 percent engaged in an activity that improved occupancy comfort.
Increased daylighting has been associated with increased occupant satisfaction and productivity.

Key Conclusions and Recommendations:

– Financial benefits are the primary driver for encouraging owners and tenants to pursue green retrofits.
– Product manufacturers and contractors should understand LEED, since it still plays an important role in the market.
– Energy efficiency will continue to be a requirement for green renovation activity. In fact, we believe it will be embedded into all retrofit activity in coming years.
– There is a noticeable lack of sufficient measurements of the benefits achieved in green retrofits reported by owners and tenants.
– Major opportunities exist for those who can help owners and tenants capture the data they need to find inefficiencies, establish appropriate benchmarks, and set long-term goals.
– Firms are embracing commitments to sustainability. This trend is supported by the emergence of the new chief sustainability officer position at large corporations.

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