By Nadia Balint
Green Apartment Construction Blossoming, Yet Renter Survey Shows $560 Rent Premium is Five Times Higher than Most Would Pay
When it comes to trends in real estate, some are transient, and some are here to stay and shape the industry. Sustainable buildings are proving to be the latter. Their ubiquitous presence all over the country is possibly the best clue that green living is quickly going from niche to mainstream in real estate. Investors, developers, architects and consumers are realizing the importance and benefits of building by standards that meet the needs of present and future generations.
But how eco-friendly is the multifamily sector and what does it mean for renters? New research shows that over 44,000 LEED-certified green units opened last year in large-scale developments across the nation, 13 times more than there were in 2008. In 2016, about 30,000 were open or under construction as of mid-year. Projections indicate that approximately 59,000 green-certified apartments will be completed by the end of this year. These numbers come from a Yardi Matrix national inventory of over 14 million apartment units located in large rental buildings of 50 units or more in 123 U.S. metros.
Energy-efficient construction is encouraged by the latest building codes. But some apartment developers go further than the minimum requirements — they seek LEED certification. LEED is the most widely-used certification system for green buildings, a recognized green standard worldwide. The U.S. Green Building Council’s records show that as of October 2016, there were 3,187 green multifamily residential projects in the U.S. That number includes projects that are LEED-certified or in the process of LEED certification.
A Green Apartment Movement Within the U.S. Marketplace
About 15% of what was built after 2008 in the multifamily sector is sustainable. It may not seem like a lot, but the industry has come a long way since eight years ago, when LEED certification became more widely used for multi-family projects. In 2008, only 2% of large-scale multifamily buildings were green.
At the city level, it’s easier to see difference between green apartments and traditional rentals, especially in how much rent they command in comparison. Chicago has the highest number of green apartment units with 13,800 in 62 large residential buildings. Illinois is the leading state for LEED green building per capita in the U.S. and it currently has 296 green multifamily residential projects. About 34% of all of Chicago’s new large-scale apartment buildings (built since 2009) are green.
Seattle is the only other U.S. city with more than 10,000 green apartments on the market right now, with 11,200 green units in 87 residential buildings (the largest number of green multifamily buildings of any city in the U.S.). About 27% of what has been built since 2009 in the large-scale multifamily segment in Seattle is green.
One of the most forward-thinking cities in the country, Portland, OR currently offers 8,000 green apartments in 68 buildings. What’s even more impressive is that 45% of Portland’s total post-2009 apartment construction is green.
The greenest cities for renters, however, are those that have the most choices for renting green. Factoring in the total number of green apartments in relation to the total population, Cambridge, MA has the best ratio of people to green apartments, with one green rental for every 39 people. Second is Seattle (again!) with 1:61, Alexandria, VA at 1:70, Redmond, WA at 1:77 and, not surprisingly, Portland with a ratio of 1:79. Though it claims the largest number of green units, Chicago’s green apartment to population ratio of 1:197 puts the market into perspective.
Sustainable Rentals: Value and Demand
Yardi Matrix rent data shows that green-certified apartments cost on average an extra $560 per month or 33% more than new, non-green apartments. They are also smaller, offering 73 fewer square feet of space than regular new apartments. More precisely, new, non-green apartment units (built in 2009 or later) average 955 square feet in size and cost $1,700 in rent, nationally. Green units built during the same period of time average 882 square feet in size and $2,260 in rent. The rent differences maintain across all asset classes (high-end, mid-range or affordably-priced apartments).
So how do renters feel about energy-efficient apartments and how much are they willing to pay to live in a green building? A recent RENTCafé survey of 2,631 renters shows that 69% are interested to live in an energy-efficient or green building. However, their actual willingness or ability to pay the cost of renting a green-certified apartment is well below the real price of green apartments. The majority (52%) of those that expressed interest in renting green are willing to pay no more than $100/month extra rent for a green apartment, much less than the rent premium of $560 that green apartments demand. Prices still have a long way to go (down) until they align with what most renters are willing to pay.
Nearly a quarter of respondents wouldn’t pay anything extra in rent to live in a sustainable apartment. Only 10% would pay more than $500/month, approaching the real-world premium that those rentals are demanding.
The interest for green living is evenly distributed across all generations; 34% are millennials, 34% are gen-xers and 32% are baby-boomers. The largest share of those willing to spend more than $500 in additional rent for a green-certified apartment is made of baby-boomers.
The survey also revealed that the most popular green apartment features are “energy-saving appliances and thermostats,” followed by “water-saving plumbing” and “eco-friendly transportation options.”
Although there aren’t many reports on specific long-term energy savings, renting green brings along some savings in terms of energy and maintenance costs, as well as health benefits such as better air quality and temperature comfort, not to mention that priceless “do-good feeling.” But these added benefits come at premium prices, preventing many from leading the sustainable life they desire.
Building Green as Part of a Social Movement
This “eco-minded” social movement is nothing new, as each generation has had its own footprint. Nowadays, we see it in the behavior of the consumer segment coined by sociologists as “cultural creatives.” They are consumers who promote sustainability through their daily habits; they eat healthier, buy organic local produce, drive electric cars, buy fair-trade products. They show a growing interest in using less resources, and they want to live and work in buildings that use materials, finishes and fixtures that have a good impact on the community and the environment. They are more or less the target renters for the green multi-family sector and the real estate market is responding.
The LEED Silver-certified Coast at Lakeshore East is among Chicago’s premier apartment buildings to offer green apartment living. It promotes sustainability by providing its residents with an eco-friendly courtesy shuttle, proximity to neighborhood electric car charging stations and sustainable features such as Energy Star appliances and individually controlled heat and air conditioning. Its exterior architecture combines translucent glass, fritted glass and aluminum materials to harness and maximize natural light and save energy. The price to enjoy this upscale downtown green lifestyle ranges between $1,700 and $4,200 per month.
For a long time, “green” was not a decision factor when choosing a rental apartment, but now for many renters it finally is. The industry has gotten more familiar with green buildings, and it’s getting cheaper and more efficient to build green. So, in theory, green living should become increasingly accessible to more people. While there’s a rising interest in renting green apartments, for the time being rent prices continue to be the drawback for most.See All Tags