In recent years, developers have been changing the designs of their warehouse inventories in accordance with new design standards in order to achieve a LEED certification status. In 2005 and 2006, it was a new concept and largely a yawner, ignored completely by tenants and agents alike. No one really knew what it was or what it accomplished, and no one cared anyway. The economy was booming, prices were rising every month (or so it seemed) and it didn’t matter what anyone paid for anything because in a few months prices would just go up again.
Fast forward to the market today, and LEED is no longer something to be ignored.
What exactly is LEED? It is an acronym for Leadership in Energy and Environment. This organization provides design standards for a green building certification program that recognizes best-in-class building strategies and practices. To receive LEED certification, building projects satisfy prerequisites and earn points to achieve different levels of certification.
Now that we’ve established this definition, what’s the relevance to industrial real estate? It may not have had much in 2005 and 2006, but in the post-recessionary economic climate, things have changed. In general, the firms that are still with us are leaner and far more attentive to effective fixed cost management. Now, LEED buildings are far more in demand and LEED certifications are being looked at far more closely. Here at Miller Industrial Properties, we have added a LEED column to our spreadsheet when we recap potential locations for a prospective client to consider. Clearly, it’s an aspect of the warehouse search that is now being duly considered. But why?
There are several reasons for prospective tenants to take note of LEED certification, including the growing corporate attention to sustainability (and idea that applies not only within their own organizations, but in the environment at large). Corporate America is more concerned about its supply chain resource providers and the corporate culture of those entities and specifically how it dovetails with their own. We are seeing the extension of that thinking trickle down to the selections they make on their warehouse locations as well. LEED is a resource that allows these firms to gauge the level of environmental awareness their real estate partner has in the design of their warehouse products.
Another significant factor is the actual cost savings associated with a high LEED accreditation. This presents itself in several formats. First, there is a savings on taxes that are passed onto the tenant occupant in the form of NNN recovery savings. Tenants pay the taxes on their space and a lower tax bill translates to a lower fixed cost to occupy. Another direct fixed cost savings comes from the use of the highest level of efficient lighting and heating systems. The utility costs for heating and lighting are always a significant operating cost, and savings in these areas can be very substantive. Some developers are adding insulation to warehouse walls, something that has traditionally never been offered before, which translates to savings in reduced utility consumption.
One more element is an intangible, but we sense it plays into decisions regardless. It’s the pride factor. The tenant occupying a greener warehouse can be prideful about operating in a cutting edge facility that is leaving the smallest carbon footprint with the lightest possible impact on the environment. When you couple that with the other factors, it’s easy to understand why more and more designs are likely going to attempt high LEED certifications well into the future.