03 Sep
By Johnathan Bartlett & Shyam Kannan
The buzz surrounding “green” development in the commercial real estate business has gone fairly silent of late, as concerns about refinancing and negative absorption have replaced cerebral debates about the merits of LEED Gold versus Platinum. This creates an opportunity to shift the green conversation to one sector likely to flourish over the next five years: rental apartments. With the support of ten sponsors, RCLCO recently surveyed 3,200 renters in 13 cities to ascertain what they care about and what they’ll pay for when it comes to going green.
Generation Y Leads the Charge
Our research yielded several important lessons. Generation Y, a massive wave of renters over the next several years, demonstrates a proclivity for green apartments, but aren’t necessarily willing or able to pay premium rents for green features. These renters expect a certain level of green as a baseline. The challenge for apartment developers is to incorporate and market green features in a cost-effective way without charging higher rents.
Brand Matters
The second lesson is that brand matters, but the development community may be chasing the wrong brand. For years, architects and engineers have owned the conversation about green building and have kept the discussion unnecessarily technical. Most renters are neither engineers nor scientists. They do not have time to research complicated technical issues. LEED, EarthCraft and other green building certifications mean little or nothing to renters. Renters do however, know and respect the ENERGY STAR brand, and until they are educated otherwise, it appears to be the only brand they are willing to pay more for.
“Me Green” versus “We Green”
An overwhelming majority of renters are concerned about the environment, and almost half are willing to spend money to protect it. Things like recycling are important to most people, but we can segment environmental benefits into two specific categories: those that impact health and/or pocketbooks (“me green”) and broader picture issues (“we green”). Although many renters care a great deal about “we green”, “me green” issues are the ones that influence housing decisions. “Me green” boils down to two major issues: saving energy (which can translate into saving money) and improving the quality of the indoor environment (with subsequent impacts on health and wellness). Apartment operators should sell green in ways that are most meaningful to prospective residents. They should stress the savings they will receive on their utility bills instead of the conservation of the planet’s water resources.
“Me Green” Issues Create Lasting Value
We estimate that green renters make up as much as 25% of the market. Developers that pay attention to the green renter can differentiate their projects in the eyes of prospective tenants and investors. It can also get up the learning curve on practices that may eventually be mandatory. By focusing on “me green” issues and not overspending on certifications that the consumer doesn’t understand, there is an opportunity to create lasting value.
Jonathan Bartlett is a Vice President in RCLCO’s Atlanta’s office. Shyam Kannan, LEED AP, is a Vice President in RCLCO’s Washington, DC office.