Cash is King: Assessing the Financial Performance of Green Buildings

A steady rise in green building construction over a decade has brought the sector firmly in mainstream of the construction industry. Hence, not surprisingly, designers, developers, buyers, and occupants all are closely monitoring the promised benefits of green buildings; particularly whether these can be monetized. Our analysis of three building standard-segment combinations, namely a LEED retail building in the U.S., a Passive House home in Germany, and a Green Rating for Integrated Habitat Assessment (GRIHA) 4 Star office in India, shows that utility savings by themselves don’t justify the green construction premium. Factors like a rental and/or resale premium and government financial incentives will make or break the financial case for green buildings. Where such factors exist, the internal rates of return (IRRs) are steady, predictable, and north of 5%, making green buildings an attractive, bankable asset class.