The so-called “green premium” in office buildings is a well-established fact for many in real estate, but a new report shows it also extends to multifamily. A Cushman & Wakefield analysis determined that Class A multifamily properties with LEED certifications achieved 3.1 percent higher rents than non-certified properties during the 2000 to 2021 period.
Multifamily properties with LEED certifications are a smaller share of overall inventory than in the office sector, but the number is growing. LEED-certified multifamily buildings increased from 7.5 percent of Class A urban inventory in 2000 to 18.1 percent by the end of 2021. Cushman & Wakefield examined multifamily buildings between Quarter 1 of 2000 and Quarter 4 of 2021 that were Class A, had 50-plus units, and in Gateway-Plus markets like New York, Chicago, Los Angeles, and Seattle.
The report also revealed there were financing incentives for LEED-certified multifamily properties. Both Fannie Mae and Freddie Mac have programs for financing sustainability-enhanced multifamily assets. For example, Fannie Mae offers a “Green Rewards” pricing incentive package for owners who reduce energy and water consumption by at least 30 percent.
Part of the reason for the green premium in multifamily is because most green buildings are newer and naturally more expensive than general market rents. Many LEED-certified buildings can also be classified as luxury. Still, having a LEED certification provides instant brand recognition in a time when more renters are eco-conscious.
Sixty-one percent of renters said they’d be willing to pay more to live in a sustainable community, according to AMLI Residential’s third annual Sustainable Living Index. Today, younger generations express more concern for green building features, so going after a LEED certification could be a smart move for multifamily owners, as demand for sustainable living looks poised to grow.