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'Green' buildings get higher rents

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BETHESDA, MD -- Office rents in buildings rated energy efficient by the U.S. government are growing two-thirds faster than rents in less economical buildings as fuel prices set records, real estate data provider CoStar Group Inc. (Nasdaq: CSGP) said.

Average rents have risen 15 percent at offices with the Energy Star label, given by the Environmental Protection Agency to buildings in the top quarter of energy efficiency nationally, compared with 9 percent for non-Energy Star buildings, according to data compiled by CoStar. Energy Star buildings also have higher average rents and occupancy rates.

Landlords are "getting higher rents and have higher occupancies, but they probably also have lower operating costs because they have higher efficiency," said Jay Spivey, senior director of product management at CoStar.

With oil prices reaching all-time highs last year, and the Bush administration pledging to reduce America's energy consumption to cut costs and fight global warming, even buildings are being targeted for energy savings.

On average, commercial buildings in the U.S. spend $1.81 per square foot a year on energy. Buildings considered inefficient by U.S. government standards spend $3.37 a square foot, according to the EPA. That means that an inefficient 200,000-square-foot building will spend $674,000 a year on energy, while a typical Energy Star building of the same size will spend $254,000, at $1.27 a square foot a year.

The EPA says annual energy bills at Energy Star-labeled office buildings are 35 percent lower on a per-square-foot basis than at the average building.

CB Richard Ellis Group Inc. (NYSE: CBG), the world's largest commercial real estate services provider, last week said it plans to make its own offices carbon neutral by 2010, and will help clients with energy-efficiency programs at the 1.7 billion square feet of building space it manages throughout the world.

Energy Star-rated buildings also have higher occupancy rates -- 89.2 percent, compared with an 87.5 percent occupancy rate for less-efficient buildings, CoStar said, after comparing 203 Energy Star-labeled buildings with 2,077 similar buildings that lacked the rating.

Rents in Energy Star buildings averaged $31.39 a square foot in the first quarter, 6.4 percent higher than in buildings without the rating, said CoStar, which has a database of almost 2.3 million properties in the U.S. and the U.K.

"Individual organizations have reported findings like this, but that has always been independent of their portfolios," said Stuart Brodsky, national program manager for commercial properties at the EPA's Energy Star program.

Power consumption at commercial buildings accounts for 18 percent of U.S. greenhouse gas emissions, according to the EPA. Houses, condominiums and apartments contribute 17 percent of U.S. emissions.

U.S. office building owners and managers are increasingly focusing on making their buildings more energy efficient through use of the Energy Star program and the U.S. Green Building Council's Leadership in Energy and Environmental Design, or LEED, rating system.

Landlords save energy through methods such as installing compact fluorescent light bulbs and upgrading heating and air-conditioning systems.

While there's a correlation between the Energy Star label and higher rents and occupancies, the rating alone doesn't necessarily account for the boost, CoStar Chief Executive Officer Andrew C. Florance said.

Those buildings also may have upgraded lobbies, newer elevators or other improvements that make them more attractive to tenants, he said in an interview.

"These tend to be better-run buildings," Florance said.

CoStar added LEED certification for buildings to its database in 2006, and began tracking Energy Star ratings earlier this year.

The buildings CoStar used for the comparison all are Class A properties, considered to be in the top tier for their markets. All have 200,000 square feet or more of space, five or more stories, were built in 1970 or later, and are occupied by more than one tenant.

Properties with those criteria account for 47 percent of the 435 Energy Star office buildings in CoStar's database, and just 1 percent of the 238,808 non-Energy Star office buildings.

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