Impact of LEED on the Cost of Your Building

Building owners considering Leadership in Energy and Environmental Design (LEED) certification often ask what the impact of LEED would be on the cost of their building. A subsequent question is often; what is the financial return that can be expected for their investment in sustainable products and services. In the early days of LEED, uncertainty regarding LEED requirements and less stringent minimum building codes, combined with inexperience resulted in substantial cost premiums as high as 25%*2. This resulted in many building projects adhering to conventional building practices.

Cost data has become increasingly available, but the “premium” is still difficult to ascertain and is often presented as a range. Generally, the range cited for a LEED Certified or Silver rating is 1 to 5% of the total project cost. Some recent data indicate incurred costs are at the lower end of the range, while other data indicate green building projects cost over 10% more*3. Keep in mind that these figures are medians or averages, and there are inherent higher and lower costs.

What Does LEED Cost?

The cost to obtain LEED certification can depend upon a variety of factors and expectations. The U.S. Green Building Council (USGBC) includes the following:

  • Type and size of the project
  • The timing of introduction of LEED as a design goal or requirement
  • Level of LEED certification desired
  • Composition and structure of the design and construction teams
  • The process used to select LEED credits
  • Clarity of the project implementation documents
  • Base case budgeting assumptions

Classifying added costs due to LEED certification will vary depending upon project type. Administration of the LEED certification process and documentation of LEED credits is an added cost directly associated with LEED certification. The USGBC estimates these fees from $20,000 to $60,000 depending upon project size, complexity and project team experience:

Commissioning fees, which can range from $2.50 per square foot on smaller projects with specialty commissioning to as low as $0.30 per square foot on larger projects with necessary commissioning, are not always an added cost of LEED certification. Office buildings are not commonly commissioned, while commissioning is routine in the research building sector and to a growing extent among institutional building projects.

Energy modeling is recommended whenever a project has specific energy efficiency goals, but there are unique requirements for documentation of energy performance in LEED. The cost for energy modeling services can range from $15,000 on smaller projects to more than $50,000 for larger, more complex projects. These fees are driven not just by project size but also by the complexity of the building design and the mechanical system*.

In addition to these soft costs, there are LEED registration and certification fees paid directly to USGBC. The project registration fee is $600 ($450 for USGBC members), and the certification fees range from $2,250 to $22,500 based on project size ($1,750 to $17,500 for USGB members.

In 2008, with data from a 2003 study, Jim Nicolow concluded in Measuring the Cost to Become LEED Certified*:

“If LEED certification is pursued at the beginning of the project, teams can conservatively budget 2 percent for construction costs and $150,000 in soft costs for Certified through Gold level certification on most projects.”

Benefits of LEED Certification

Jim Kavanagh, chairman of 4tell, indicates that studies show several areas where LEED buildings perform better than without sustainability features* (The USGBC highlights many of these benefits in more detail):

  • Less energy use could lower total operating costs
  • In some market areas, greater market demand from both occupants and investors
  • Properties could hold value better over time
  • Maintain higher occupancy levels
  • Promotes corporate branding and building appeal
  • LEED demonstrates a signaling effect that helps shape the competitive price scale for the real estate market.
  • Promotes increased productivity and worker satisfaction

LEED has shown low market acceptance, outside of a few limited sectors.  There is a definite cost to being LEED certified or to just using green building methods.  This up-side cost would tend to the minimum side if the building were to be a high performing building anyways.  The up-side cost would tend to be considerably more if the base building was being built to earlier Codes and at standard real estate minimums.  Careful consideration should be given to analyzing the up-size cost in comparison to not only the probable lower building energy usage but also the following:

  • Possible increased maintenance and building management.
  • Some sectors have seen a higher market value for the building and leases as well as higher demand.
  • For some buildings and occupants, there is a reported increase in productivity and worker satisfaction.
  • The additional design time, certification time, construction time, and commissioning time could cause a delay in putting the building in operation and earning money.

After investing a lot of time and money into your newly renovated or constructed building to bring it up to the LEED standards, the last thing you want is to be tied up with a time-consuming and costly lawsuit.  One set of potential liabilities that relate to green building projects has to do with the technology and the performance of the building.  Building owners have an obligation to ensure that their buildings perform as promised to tenants. If your building fails to meet tenant expectations, you open yourself up to litigation,

 

Factors to Consider When Deciding Whether Your Building Should be LEED/Green

Financial Factors

  • Cost-Benefit Analysis – The upfront investment costs compared to long-term value?
  • Lifecycle Cost Analysis – Total operating and capital costs over the life of the property with and without LEED certification
  • Created Market Value – Market value for the property after it is certified

Qualitative Factors

  • Market Validation – How will the property be seen in the market
  • Tenant and Occupant Considerations – What are tenants and occupants’ sustainability goals? Are tenants more likely to renew if the building is certified? Are tenants in your market attracted to green buildings and certifications?