LEED-Certified Office Buildings Command Higher Rents

CBRE, Dallas, reported LEED-certified office buildings command a rent premium over their non-certified peers as the market endures the reverberations of the COVID-19 pandemic and remote work.

CBRE analyzed more than 20,000 U.S. office buildings in Green Is Good: The Enduring Rent Premium of LEED-Certified U.S. Office Buildings. It find those with LEED certifications commanded a 4 percent rent premium (on average) between 2019 and 2022 over those without the certification. The LEED green-building certification program gauges buildings’ energy efficiency, carbon reduction and sustainability.

Richard Barkham, CBRE’s Global Chief Economist and Head of Global Research, noted the current average 4 percent premium for LEED-certified buildings falls at the low end of the historical window of a 4 percent to 8 percent premium. “This shows that, even in challenging times for the U.S. office market, LEED certification creates value for buildings,” he said. “We anticipate the premium will increase a bit as the office market slowly recovers and office occupiers increasingly favor sustainable properties.”

The top markets for LEED-certified office properties include Minneapolis, where 53 percent of office stock is LEED-certified, San Francisco (49%) and Chicago (48%). Nationally, 31% of office assets meet LEED criteria.

“LEED certification certainly is viewed as favorable by office occupiers, many of whom increasingly are requiring building owners to explain their ESG platforms during the space-search process,” said Mike Watts, CBRE President of Americas Investor Leasing. “A LEED certification may turn out to be a key determinant in a given occupier’s decision of where to lease their space, regardless of whether that designation brings a rent premium.”

The report said the LEED premium differs between downtown (2 percent) and suburban (4 percent) buildings. “The latter likely gets a larger premium because LEED-certified buildings are more rare in suburbs than downtown,” CBRE said.

The report found similar rent premiums in most cases for buildings carrying the Environmental Protection Agency’s Energy Star certification.