The actual premium of building green

by Darren
The actual premium of building green GBCSA1

The cost premium on green building is on average much less than previously believed.

Dispelling the perception that green building attracts a significant cost premium when compared to conventional construction, research undertaken in South Africa has shown that building green costs on average only 5% more and can be as low as 1,1% more.

Over the past two years, the Cost of Green Building Study Committee, which comprised selected members from the Green Building Council South Africa (GBCSA), the Association of South African Quantity Surveyors (ASAQS) and the University of Pretoria (UP), did a thorough study to determine the cost of green buildings constructed in South Africa and trends associated therewith.

The study includes cost data on a total of 54 Green Star SA office buildings in Gauteng, the Western Cape and KwaZulu-Natal, certified through the GBCSA’s Green Star SA – Office v1 tool up to the end of 2014. The results of the study are set out in the first edition of the Green Building in South Africa: Guide to Costs and Trends Report, available on the GBCSA and ASAQS websites.

The proof is in the numbers
Pursuing Green Star SA certification was found to result in an average green design penetration of 42,7% of the total project budget. Green design penetration indicates the extent to which the Green Star SA Office v1 Rating Tool has introduced green design into elements of a project, expressed as a percentage of the total project cost.

As would be expected, the green cost premium increases with the Green Star SA rating, with an average premium for a four-star Green Star SA rated building being 4,5%, going up to an average of 10,9% for a six-star Green Star SA rated building.

There was a slight difference in average costs in the three major economic hubs, and a correlation between the cost premium and penetration. Penetration was found to be slightly higher in the Western Cape (46%) versus Gauteng (41,8%) and KwaZulu-Natal (40,4%), while the average cost premium was 6,9% in the Western Cape, 6,0% in Gauteng and 4,5% in KwaZulu-Natal.

Construction size
It was also found that the construction area had a significant impact on green building costs, with costs dropping from 9,3% for a building under 5 000m² to 2,6% for buildings over 50 000m².

Danie Hoffman, programme leader for quantity surveying at the University of Pretoria, says contracts for larger buildings often benefit from more competitive tenders due to higher levels of productivity.

“Economies of scale also result in larger developments having higher efficiency levels (and lower building costs per square metre) of installations such as lifts, escalators or air-conditioning systems. So a large office development of say 28 000m², with a substantial budget of R350 million, will therefore often be able to afford green building initiatives more easily, compared to a building with the same specification level, but 1 000m² in size and costing R14 million. Larger projects will also offer design teams more green design options/scope, which all support lower green cost premiums,” he explains.

The tenant mix
There were some interesting findings in the analysis of tenant mix. Firstly, from 2009 to 2011 only 20% of green buildings were developed for generic clients, or multi-tenanted buildings. This escalated to 40% during 2012 to 2014. In addition, it was found that a building developed for a single tenant showed a significantly higher premium (8,1%) than a multi-tenanted building at 3,4%.

Hoffman says this is because single corporate tenants often set more demanding specification levels and may also strive for a higher Green Star SA rating as part of their corporate marketing and public image. “Such tenants will in most cases also provide design teams with more substantial budgets that can allow for more expensive, state-of-the-art green design solutions,” he adds.

The significance of a local study
Manfred Braune, chief technical officer of the GBCSA, points out that South Africa has seen exponential growth in certified green buildings, from the first Green Star SA building in 2009 to the 165th in June 2016. “Despite this, there are many more buildings that could be going green but are not,” he says.

“One of the barriers has been the apparent green premium that many developers or building owners have thought going green would cost them. In the early 2000s, globally and locally a myth was perpetuated that green buildings cost 20% to 50% more than conventional buildings. Several international studies were done a few years later that dispelled this myth, but South African data had not yet been collected or reported on, so it was not included in the studies,” he explains.

“The findings in this report are very encouraging and for the first time show that green buildings can be built for a negligible premium – between 1% and 10% – and that this premium is declining. The South African study also goes into substantially more detail compared to the international studies, analysing various sub-elements of the cost of green buildings.  

“Together with the findings from the joint MSCI/GBCSA Sustainability Index, which shows that in South Africa green buildings yield a higher return on investment, they make a very strong business case for green buildings to developers, property owners and corporates,” concludes Braune.

Full thanks and acknowledgement are given to the GBCSA, ASAQS and UP for the information given to write this article.

What was analysed?
Green design premium and green cost penetration in terms of:
–    Location.
–    Construction area.
–    Base building cost.
–    Tenant mix.
–    Vertical facade to construction area ratio.
–    Green Star SA rating levels (four-, five- or six-star).
–    Rating type (Design or As Built) and certification date.
–    Cost penetration on all nine rating tool categories.

Highlights of the report:
–    Green building in South Africa is growing exponentially.
–    The average green cost premium is 5,0%.
–    This premium appears to be progressively diminishing over time.
–    Green cost premiums have been declining since 2011, indicating that the South African green building industry is maturing.
–    Large office buildings generally achieved Green Star SA certification with lower green cost premiums.
–    A higher vertical facade to construction area ratio yields a higher premium.
–    Two categories of the Office v1 tool (Energy and Indoor Environment Quality) received 58% of the allocation of the total green cost premium. These credits are therefore often pursued by design teams.

Certification level – green cost premium (%).

                                              Minimum                                Average                          Maximum
Total                                     1,1%                                        5,0%                                14,2%
Four-star                             1,1%                                         4,5%                               14,2%
Five-star                               2,0%                                        6,6%                                11,7%
Six-star                                10,2%                                      10,9%                              11,7%
The average green building cost premium achieved by the projects sampled was 5,0% of the total project cost. The lowest cost premium reported was 1,1% and the highest was 14,2%.

Construction area – green cost premium (%).
                                               Minimum                                Average                            Maximum
Total                                      1,1%                                        5,0%                                 14,2%
<5 000m²                              3,6%                                       9,3%                                 12,2%
<10 000m²                            1,7%                                       6,0%                                 14,2%
<25 000m²                            2,9%                                       6,9%                                 11,7%
<50 000m²                            1,1%                                       3,7%                                  5,0%
>50 000m²                            2,0%                                       2,6%                                  3,3%
There is a strong negative correlation between green cost premium and construction size. The larger projects managed to achieve a Green Star SA certification at a much lower average green cost premium when compared to smaller projects.

Base building costs (R/m²) at December 2014 – green cost premium (%).
                                                Minimum                             Average                               Maximum
<R11 560m²                         1,7%                                     5,1%                                    11,7%
<R12 530m²                         1,1%                                     5,8%                                     9,8%
<R14 140m²                         3,6%                                     8,2%                                    10,0%
>R14 140m²                         2,0%                                     6,6%                                     12,2%
The base building cost has been calculated as the total project cost minus the base cost divided by the office construction area. To allow for the time value of money, all costs were escalated to December 2014. The study revealed a marginally positive relationship between base building cost and green cost premium. Buildings with a higher base building cost also had on average a slightly higher green cost premium.

Certification date – green cost premium (%).
Year                                      Minimum                               Average                                 Maximum
2010                                     3,6%                                       3,6%                                      3,6%
2011                                     6,8%                                       8,3%                                      11,7%
2012                                     2,7%                                       8,2%                                      12,2%
2013                                     1,7%                                       3,5%                                      14,2%
2014                                     1,1%                                       6,6%                                      10,2%
 The study points to a maturing of the South African green industry over time. Since 2011, green cost premiums appear to be declining.

Certification rating – green cost premium (%).
Projects with a Design certification rating achieved an average green cost premium of 6,3% compared to the 6,9% by projects with an As Built certification rating.

Rating tool categories – green cost premium allocation (%).
 The actual premium of building green GBCSA2
Almost 58% of the total green cost premium was allocated to two categories, namely energy and indoor environment quality. It is notable that together with management, materials and water, these five categories made up more than 88% of the total green cost premium allocation.

“Used with the permission of the Association of South African Quantity Surveyors, Green Building Council South Africa and the University of Pretoria”.

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