LBNL Partners to Advance Empirical Research on Energy Efficiency and Building Valuation

October 16, 2019

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Building owners, investors, and other decision-makers often want to be sure their energy-efficiency choices will result not only in energy savings but also the improved financial performance of the building. With the support of the U.S. Department of Energy’s (DOE’s) Building Technologies Office (BTO), Lawrence Berkeley National Laboratory (LBNL) is overseeing academic research on how energy efficiency impacts building valuation. The newly published reports based on this research have generated meaningful, actionable results capable of empowering commercial real estate stakeholders and encouraging further investment in energy-efficient buildings. 

According to the U.S. Energy Information Administration, the total energy consumption of commercial buildings in the U.S. is expected to increase by nearly 20% between now and 2050. To reduce consumption and better understand how energy-efficiency measures can improve the financial value of buildings, DOE commissioned a literature review of 39 published academic papers related to green- or energy-related building attributes and financial performance. The LBNL review indicated that 27 of the papers, or about 70%, found a positive correlation between green building certifications and rents.

In light of this connection, LBNL and the Real Estate Research Institute partnered with several real estate companies and academic researchers to conduct empirical, quantitative, market-focused research on the impacts of energy efficiency and green building features on metrics of financial value, such as sale price, rents, and vacancy rates. The five reports describe the teams’ research findings and detail next steps for transforming energy-efficiency investment practices in the commercial real estate industry.

“In addition to engagement with asset managers and portfolio managers, we use these research results to engage with both existing and prospective clients and investors and consultants,” explained Jennifer McConkey, senior director of operations and sustainability at Principal Real Estate Investors. “We have conducted research with DOE on our own portfolio, and it is very helpful to be able to talk about our own results as well as broader industry information with internal and external stakeholders to influence both property and portfolio-level decision-making.” 

Below are examples of research questions and results from the BTO-funded studies:

Question 1:

How are environmental building certifications related to energy consumption in commercial buildings?

This study analyzed data from 26,000 properties and found that environmental building certifications—which include tenant engagement programs and building technology improvements—are estimated to reduce energy consumption by 15%. 

Question 2:

What is the hurdle rate for energy retrofit investments in office and multifamily buildings?

A second project analyzed 4,000 building energy audits in New York City and found that the median internal rate of return (IRR) for adopted measures was 20–24%. Essentially, the higher the IRR, the more likely the real estate professional is to follow through with the recommendation. These results indicate that in order to encourage investment, energy conservation measures should meet this IRR.

Question 3:

What is the impact of environmentally focused building interventions on energy consumption?

A third study used 15 years of data from 261 buildings and found that building interventions have a significant impact on reducing electricity consumption, including the following:

  1. Tenant Engagement: 12.5% energy savings over 4 years
  2. Building Certification: 25% energy savings over 7 years
  3. Building Management System Software: 25% energy savings over 10 years

Moreover, specific interventions, such as retrofitting the HVAC system, retrofitting the lighting system, improving building controls, and occupier engagement programs, improve the energy efficiency of commercial buildings. In combination, these interventions can reduce energy consumption in commercial buildings by over 15%.

“There is a growing corpus of academic literature on the relationship between energy efficiency and the financial value of buildings,” said Paul Matthew, the LBNL principal investigator who managed this collaborative effort. “These five studies used new data sources to provide empirical evidence on research questions that have not been adequately addressed previously. More importantly, I think they provide actionable information for industry building owners, managers, and investors.”

The development of this partnership between DOE, academic researchers, and the commercial real estate sector provides greater transparency and quantitative evidence of the market drivers in energy-efficiency adoption for decision-makers in the industry. This empirical evidence of financial value is key to sustain and increase demand for, and investment in, energy-efficient buildings.

The reports are featured on the Better Buildings Solution Center along with 2,500 other resources that highlight verified energy-saving building technologies and practices that can improve the value and performance of the commercial buildings sector.