LEEDing the Green Retail Sector

LEEDing the Retail Sector Green

Exploring the Progress and Possibilities of Sustainable Development

Jerry Yudelson*

 

Abstract: Green buildings have come of age. Cumulative project registrations under the US Green Building Council's

"Leadership in Energy and Environmental Design," or LEED, rating and certification system increased 50% in 2006 compared

with 2005, and finished project certifications increased 67%. However, the retail sector has been slow to participate in this

"green building revolution." This research report presents the business case for green buildings in the retail sector, presents

some representative cost data, and profiles some of the innovative projects that are convincing other retailers to use green

building features and ratings.

 

I. Green Building History and Trends

A trend toward building and utilizing structures that

are environmentally friendly is growing quickly. Taking

“green” to mean buildings certified by the U.S. Green

Building Council’s “Leadership in Energy and

Environmental Design,” or LEED™ system, as are more

than 98% of all such buildings, the growth in the green

sector has been remarkable. LEED was introduced in

2000, originally to cover only new construction projects

and major renovations. It’s since been expanded to cover

Core and Shell buildings, new or remodeled Commercial

Interiors and the environmental performance of Existing

Buildings.

 

The LEED rating system covers five major

categories of environmental concern, each of which can

apply to the retail store and to shopping-center sector

development.1

Sustainable site development

 Site selection

 Urban infill and brownfield development

 Transportation and parking

 Open space conservation

 Storm water management

 Urban heat island reduction

 Light pollution

Water conservation

 Landscape water use

 Water conservation and wastewater

treatment

Energy and atmosphere

 Energy conservation in store operations

 Renewable energy use on site

 Building commissioning for improved

operating efficiency

 Performance monitoring and verification

 Purchase of green power from off-site

producers

Materials and resource conservation

 Construction waste recycling

 Use of recycled content and salvaged

building materials

 Use of locally produced materials

 Use of bio-based materials and certified

wood products

Indoor environmental quality

 Non-smoking buildings

 Improved indoor air quality

 Use of Low-VOC (volatile organic

compounds) materials for paints, coatings,

carpets and composite wood products

 Improved thermal comfort

 Use of daylighting

LEED also provides four levels of recognition,

depending on the documented level of achievement. In

the LEED-NC (new construction) rating system, there

are 69 total achievable points. The award levels are the

following:

Certified = 26 to 32 points

Silver = 33 to 38 points

Gold = 39 to 51 points

Platinum = 52 or more points.

 

The highest point total to date is 60, achieved by a

general contractor’s own headquarters in St. Louis,

Missouri. Fewer than 30 (of nearly 700 total certified

projects) have been awarded the Platinum designation.

More than 70% of all LEED certified projects achieve

the Certified and Silver award levels.2 The categories in

the LEED rating system are not exhaustive, but indicate a

good part of its concerns. The LEED for New

Construction rating system (LEED-NC) currently covers

about 75% of all LEED projects. Compared with data for

2005, in 2006 all LEED project registrations

(declarations of intent) grew by more than 50%, while

project certifications grew by 67%. This rate of growth is

hard to find in any other area of the commercial building

sector, so green buildings must be reckoned with as a

major industry trend. Chart 3-1 shows the growth of

LEED-NC project registrations, certifications and

registered project area (in millions of square feet) since

2000.

 

In the LEED system and in the green building

movement in general, retail has certainly been a laggard.

As of May 2007, approximately 100 retail projects had

registered their intent to certify under the LEED-NC or

LEED for Core and Shell (LEED-CS) rating system,

compared with nearly 5000 other projects.3 Nonetheless,

in response to the evidence of the importance of greening

the retail sector, the USGBC launched two major

initiatives in 2006, the Volume Build program and the

LEED for Retail pilot (draft) rating system. The Volume

Build program is an attempt to work with the retail sector

to reduce the costs of green building certification for

those retailers who build essentially the same store in

many locations. The LEED for Retail pilot is now

available for use and is an attempt to adapt the LEEDNC

rating system for the retail sector. Companies

wanting to certify using the pilot rating system must

apply to the USGBC to do so.

 

II. Driving Forces for Green Retail

Awareness and respect for environmental concerns

are on the rise worldwide. In the commercial office

sector, for example, there is a growing appreciation for

the business-case benefits of green buildings. These

benefits include some or all of the following:

Reduced energy costs

Increased use of utility and tax incentives for

energy conservation

Increased building value, through higher Net

Operating Income

Improved productivity and reduced health

impacts of building operations

Improved sales and lease-up of properties

Growing evidence of increased sales from

daylighting, averaging 5%4

Marketing benefits

Public relations benefits

Recruitment and retention of key people

Greater funding availability from institutional

sources

Increased interest by Wall Street (for public

companies) in a company’s long-term

sustainability programs

Corporate social responsibility exemplified in

green buildings

Not all benefits apply in all cases, but this list is

indicative of what green retail stores and retail-center

developers should consider when weighing the costs and

benefits of greening their operations. In this report, we

will also explore tenant and consumer demand, local

government incentives and mandates and increasing

energy costs as driving factors.

 

III. Case Studies

For this research report, we looked at a number of

case studies covering LEED-certified and other green

retail projects.5 The green leader at this time is PNC

Bank (NYSE: PNC), with more than 40 retail branches

certified or registered for LEED certification, plus two

major office towers. Wal-Mart has completed two

“experimental” stores in Colorado and Texas and has

committed more than $500 million in energyconservation

upgrades. Two shopping centers are

certified at LEED Silver, and the first LEED Gold

shopping center is well on the way. The first LEEDcertified

retail project was a Giant Eagle supermarket.

A. Developers’ Case Studies

Northfield Stapleton. As part of the research for this

report, we visited Forest City’s Northfield development

in Denver at Stapleton Field (the former Denver airport),

which received the first LEED for Core and Shell Silver

certification for a “Main Street” or “town center” retail

development. The Stapleton residential development has

received smart growth awards from the Urban Land

Institute and the National Association of Homebuilders.

The master plan for the entire project required

“sustainable development,” a condition that applied also

to the retail segment. The LEED certification process

involved about 16 small buildings at the core of this large

(1.2 million square feet) development, which opened for

business in 2006. This open-air project features extensive

signage about the green features of the project (created

from salvaged signage from the former airport runways),

3 USGBC project registration statistics, ibid.

4 See studies by Heschong Mahone Group for Pacific Gas & Electric, www.h-m-g.com.

5 Case studies were based largely on interviews conducted during May and June of 2007 by Gretel Hakanson, Yudelson Associates, and Sonja Persram,

Sustainable Alternatives Consulting, Toronto.

Features

13 High-efficiency plumbing fixtures in public restrooms,

low-toxicity paints and carpets, a reflective roof, high

e f f i c i e n c y irrigation and a small solar power

s y s t em ( n o t visible from the street level . )

There are also tenant guidelines

that stress both education and

incentives for tenants; those

who comply getto display a

sticker on their window that says,

“Sus tainabi l i ty P r o g r a m Participant.”

 

Abercorn Common: Developed by Melaver, Inc., a

privately-held developer, the 169,000-square-foot

Abercorn Common in Savannah, Georgia, also received a

LEED-CS Silver certification in 2006. Abercorn

Common boasts the nation’s first McDonald’s in a

LEED-certified building, along with a host of green

features in the other parts of the center. In 2006, the

project became the first retail LEED for Core and Shellcertified

project in the country, achieving the Silver level

of performance.6 According to the developer, the second

phase of the project, the 16,000-square-foot Shops 600,

was certified at LEED Silver level and built without any

discernible cost increase. At Shops 600, the leasable

retail space includes solar water heaters and a green roof.

Harvested rainwater provides 5.5 million gallons a year

of irrigation water, the project’s entire consumption. A

densely-insulated building envelope and a reflective

white roof reduce electricity consumption by more than

30%. Porous pavement in the parking lots reduces storm

water runoff by 30%, and water-efficient plumbing units

reduce projected water use by 50%.7

Green development was an extension of the owner’s

vision. A few years ago the company decided that all of

its subsequent development projects would be LEED

Certified. This directive arose out of the company’s core

values. In 2002, the executive team met with Paul

Hawken and developer John Knott, who recommended

that the company retain ownership of its buildings, and to

insert its values into

the development

process. At that time,

LEED was rising in

prominence, and the

c o m p a n y w a s

p l a n n i n g t h e

Abercorn Common

project. During 2002,

Melaver’s planning

on an office project

that was fairly far

along (the Whitaker

building) was halted

for four months to

allow staff to learn

enough about LEED t o  e n a b l e

achievement of the LEED goals. The knowledge base and goals were then

also applied to Abercorn Common, which required a

little re-working of the initial planning.

First Capital Realty: First Capital Realty (TSX:

FCR) is the one of largest owner, operator and developer

of retail shopping centers in Canada. Primarily sited

within major metropolitan neighborhoods and anchored

by supermarkets, the Canadian centers comprise 161

properties totaling about 18.9 million square feet of gross

leasable area, of which $132.8 million in properties is

under development.8 The company is undertaking an

ambitious greening program whereby one-third of all

properties will be LEED-certified with Canada’s Green

Building Council within three to four years, and the

remaining (existing) buildings will be “as green as

possible” over 10-15 years.

 

Visionary leadership: This green building program

was initiated one year ago by President Dori Segal, who

engaged corporate executives with his vision for the

company’s shopping-center property holdings to be

sustainable going forward–not just from an

environmental perspective, but for economic reasons as

well.

 

Currently, 27 green LEED-NC projects are in progress,

and 27 more are at the planning stage. The LEED—

certified requirement will relate to all new construction—

6 Melaver Project Receives 2nd LEED Certification, The Savannah Morning News, February 22, 2007, www.abercorncommons.com/index.php

option=com_content&task=view&id=20.

7 Shops 600 at Abercorn Common Receives LEED Silver Certification, PRLEAP.COM, February 25, 2007, www.prleap.com/pr/67257.

8 First Capital Realty Inc., Annual report 2006, Toronto, Ontario, www.firstcapitalrealty.ca/live/financials/documents/fin_e_28.pdf.

9 The Canada LEED certification is essentially equivalent to the U.S. Green Building Council’s LEED program requirements, with some adaptation for Canadian

conditions.

 

As indicated, in existing properties, greening will evolve

more slowly, such that for example, HVAC/re-roofing/

landscape upgrades will take place as the existing

components approach the end of their useful lives.

Business case factors: The primary driver in the

business case that First Capital considers is location: The

company owns ‘insulated’ properties surrounded by

dense residential communities. The second driver is the

tenant base. Although at present no tenants are

demanding green leased space, the company anticipates

that a demand shift will occur among larger retailers, and

the company also recognizes that some tenants—

especially financial institutions—are intending to

consider LEED-CI in their future commercial fit-ups.

Hence, First Capital plans to be ahead of this market and

to stay there. Currently, however, tenants are happy to

have the green measures but are unwilling to pay for

them.

 

First Capital understands that paybacks will not be in

the short term, but will be achieved in the medium—and

longer-term. Although a good deal of effort is now put

into educating tenants, the company anticipates that

tenants will increasingly demand green leased space in

the future, and so it expects to realize future economic

benefits through this market differentiation strategy. As

well, First Capital Realty sees this approach as indicating

that it is a good corporate citizen. While it is anticipated

that greener buildings will be associated with higher

leases, it is expected that only after one to three years of

operations can the company reliably quantify cost

savings for future tenants in this or other properties. First

Capital anticipates the benefits to the company will

emerge in the medium term—three to five years.

Financial and non-financial incentives: Permitting

and awarding additional building capacity are significant

factors affecting costs differentially across the nation: In

British Columbia, municipalities are so familiar with and

supportive of greening, that permits were fast—tracked

(saving a great deal of time and money). Or a

municipality may offer another ‘pad’ to build on as a

developer incentive, given a project’s green goals.

Farther east, however—from Alberta through Central and

Eastern Canada—while municipal policies are intended

to encourage green building, their staffs were unfamiliar

with the measures, and in fact the building permitting

process was slowed down. First Capital had to spend

time with municipal staff in these regions in order to

bring them on board.

 

Challenges: There have been 3 major challenges

experienced to date:

Tenant education: Much time is spent in

educating the tenants regarding potential

implications of their space changes arising from

the greening. Delays also are incurred due to the

leasing departments’ education gaps.

Municipal staff limitations: As indicated, while

municipalities have the political will to encourage

green buildings, at the moment, east of British

Columbia, municipal staffs are not sufficiently

knowledgeable to effectively support green

building permitting. The City of Toronto has

formed a Steering Committee to address these

concerns, and invited First Capital Realty to

participate.

Managing costs: Cost challenges have been

significant. It was anticipated that the cost

increment for greening would be between 5% and

7%; however for some components this has been

as high as 15%-20%. One green project in

progress, the Morningside Crossing property, was

an existing shopping center with parking. A major

portion of the center was vacated and demolished,

with an occupied portion still standing while the

new center was built. When the construction is

complete, the tenants will move in and the

remainder of the older site demolition and

reconstruction will take place. This property

presented some challenges. First, deals with

tenants were done prior to the decision to green,

which required considerable time spent educating

tenants as to the implications of the greener

building from their perspectives. Also, leases are

triple net; however some anchor tenants have

claw backs and caps on costs, limiting what they

are prepared to pay the developer. And the

decision to green took place after consulting and

design drawings were done, requiring many

changes to the contract which added considerably

to the expenses. Costly green components have

included higher-efficiency rooftop units, and

low-e triple-paned windows encasing argon (30%

higher costs than conventional windows).

Insulation costs to achieve LEED certification

were not significant since only a few inches were

added.

 

B. Retailers Case Studies

Giant Eagle Supermarket: The first LEEDcertified

retail project was an 80,000-square-foot Giant

Eagle supermarket in the Brunswick Town Center

shopping plaza in northeastern Ohio in 2004. When

building the Brunswick supermarket, Giant Eagle

implemented a range of environmentally friendly

features. These are fairly typical of the measures

available to large retail stores.

 

Features

The consumption of 30% less energy than

comparable supermarkets, with more than 50%

of the location's electrical energy supplied

through wind generation.

More than 50 skylights integrated with electrical

lighting sensors, which automatically adjust the

amount of electric light supplied depending on

the light generated by the skylight.

A fiber-optic lighting system for wine coolers

that reduces heat generation.

Natural filtration of parking lot storm water into

the adjacent constructed wetland.

Water-conserving equipment that will save more

than 100,000 gallons per year.

Construction waste recycling program that

diverts 62% of waste from landfills.

All wood used in the building is sustainably

harvested, as certified by the Forest Stewardship

Council.

Drought-resistant plants and trees that require no

irrigation other than natural rainfall, saving about

400,000 gallons of water each year.

A green housekeeping program that uses

environmentally responsible cleaning products.

A white, reflective roof and increased insulation

to allow the building to cool and heat more

easily.10

 

 

Home Depot Canada: Home Depot of Canada Inc.

has 155 stores in Canada, and has been working to

develop a retail brand array of ecological choices for

home renovations. The North Hill project in Calgary,

Alberta, was the company’s first LEED-certified

project.11 Two years ago, when Home Depot of Canada

was planning a fifth store in Calgary, the city required

that any development within the location preferred by the

company—the downtown core—be certified LEED, and

(in the specific instance) utilize an existing building.

Given the desirability of the site, the agreement was

struck, and the first LEED-certified Home Depot store

was developed.

 

The site was a small, old hotel, which was

demolished with much of the old building reused in the

new structure. The size of the site meant underground

parking was required. For a variety of green and nongreen

factors, including the way it was demolished, the

requirements for re-use, and a labor shortage prompting

skyrocketing labor rates (given the Alberta oil sands

development), the cost increment for this development

was 25%.

 

Lower energy operations and maintenance costs have

been noted at the store: Energy costs for lighting are

40%-50% of those at other stores. Additionally, there

have been some water savings due to the installation of

water-free urinals and low-flush toilets, as well as timed

equipment for plant watering at the garden centers.

Many of these higher building standards (such as

energy-efficient lighting; temperature sensors allowing

energy shedding by regulating lighting with external

temperatures; central energy management of all stores in

Canada; and LED signs at both entrances and exits), have

been implemented as specifications for all new

construction, and some also applied in the existing

building stock. However, the company will not be

bringing all its buildings to LEED standards, or even to

the energy-efficiency standards of LEED certification

levels.

 

The driving force for greening future Home Depots

in Canada is the business case. If a store is being

developed on a greenfield site, it would likely be built to

LEED standards. Where a region requires that

developments comply with LEED standards, and the

expected sales volumes balance out the anticipated cost

increases, Home Depot Canada’s business case

requirements may be met. In Bowmanville, a town near

Toronto, the low land costs allowed development

standards targeting a LEED-certified level. While there is

a great deal of pride over the LEED-certified North Hill

store, the company did not seek market differentiation on

that basis. Home Depot of Canada believes there have

been reputation benefits from the project, but these are

difficult to measure.

 

Cycles Unlimited: This store is a privately owned

bicycle-sales-and-service shop located in Springfield,

Missouri. Owner Ashley Burchfield had built

conventional homes with his wife and, given the

construction waste and materials use involved, he was

motivated to be environmentally responsible in the

development of a new company location, which also is in

keeping with the innovative culture of his company. The

project’s development is privately funded, and the goal

of attaining LEED standards is owner-driven. In

November, 2006, the company’s 4,980 gross square foot

retail project was registered LEED-NC v.2.2 with the

USGBC. The project goals are for LEED certification at

the Gold level.

 

 

IV. Benefits of Green Retail Centers

If green buildings are happening everywhere in the

will come into the retail sector in the next few years.

What would be the benefits to a developer to have a

larger “green profile?”

Consumer demand: It’s speculation at this point, but

one can foresee that as more large retailers (such as

Home Depot, Starbucks, various banks, etc.) begin to

build green stores, consumers will come to expect that

the entire shopping center will have green and

sustainable features. If one does and another doesn’t, is it

possible that consumers will prefer to shop at one and not

the other? What is clear from a number of studies of the

LOHAS consumer (representing Lifestyles of Health and

Sustainability), is that a certain “core group” of such

consumers prizes “authenticity” in their lives and

selectively patronizes retailers who demonstrate those

values. What is not clear at this time is how much you

and I are going to change our shopping habits to

patronize centers that have such tenants.

The entitlement process: Getting land-use and

building permits to construct new centers and often to

renovate older centers, as well as to develop mixed-use

projects, will continue to be a struggle. In many locales,

city and county authorities are beginning to offer

preferential treatment to development applications that

promise to achieve LEED certification. This treatment

can take the form of “top of the pile” priority processing

(Chicago and San Francisco are two that offer this) and

density bonuses or reductions in certain other

requirements. As of June 2007, approximately 20

jurisdictions in the U.S. offered some type of

development incentive for green buildings. Expect many

more cities and counties to offer priority processing for

commitments to build to green certification standards, if

for no other reason than that it’s politically attractive to

do so and costs the jurisdiction nothing. Expect,

however, to start having to post bonds to back up your

commitment—cities will figure out that they’ll have to

give you permits long before you have to get the LEED

certification done and that they need some reassurance

that you’ll follow through on your commitment.

There are also mandates anticipated on the private

sector, since more than 350 U.S. mayors have signed up

their cities for the Mayors Climate Change Initiative,

which commits them to reduce carbon dioxide emissions

by a certain amount. As cities begin to grapple with the

reality of this commitment, there will be a temptation to

start forcing the private sector to do its part.

In our view, a developer would be wise to start

getting green building experience now, before more of

these provisos come into force. As of early 2007, about

10 cities around the U.S. (including Boston and

Washington, D.C.) now have ordinances requiring LEED

certification for larger commercial developers. As most

cities are run by political liberals who value such issues

as green building, reducing energy use and increasing

environmentally sensitive land use, developers can

expect to face such demands.

Cost offsets: There are opportunities for reducing

initial development costs by reconfiguring shoppingcenter

layout to recover and reuse rainwater from

rooftops for toilet flushing and cooling tower makeup

water, and to recover and treat storm water from parking

lots for irrigation and for washing streets and sidewalks.

Recovered storm water can also be infiltrated where soils

are appropriate for that purpose and/or used in landscape

ponds, drainage swales or even constructed wetlands (for

greenfield sites). The goal of all these green measures is

to avoid having to send storm water to a storm sewer and

thereby to avoid a lot of impact or development charges.

Civil engineers need to be instructed to look at a cost/

benefit analysis of such measures before proceeding with

the usual utility hookups. Not all jurisdictions will go

along with reducing fees, but it’s a useful item to have on

the table during negotiations.

Tax breaks and other incentives: In 2005, the

Nevada Legislature passed a law giving a 50% propertytax

abatement for 10 years to projects that achieved a

LEED Silver rating. If the average property tax is 1% of

value, then the abatement is worth 5% of project costs,

more or less. This law set off a “gold rush” in Nevada

that resulted in such a severe potential drain on local

finances that the Legislature made major modifications in

2007.

 

Oregon and New York both offer state tax credits for

green buildings that achieve at least a LEED Silver

rating. In Oregon, the incentive is based on square

footage (project area), so that an efficient developer can

see a definite return. Other states offer similar incentives,

so it pays to stay informed at the end of each legislative

session about new incentives for green building.

Renewable energy incentives: More than 20 states

offer some form of incentive for solar power systems.12

In addition, the 2005 Energy Policy Act (as amended in

2006) offers a 30% federal tax credit for systems placed

in service through the end of 2008. Those tax credits are

likely to be extended by the current Congress out to

2016. Taken together with local utility incentives for

solar power, state tax credits and sales tax abatements,

and accelerated federal deprecation, there is a strong

return on investment case to be made for putting solar

power on every shopping-center roof. In April 2007,

Kohl’s became the first major retailer to do this,

committing to convert more than 75% of its California

locations to solar power.

 

The benefit of using solar power incentives is simple:

The systems are visible and most of the public doesn’t

need a lot of education to recognize them. As a result, a

developer or retailer can get a lot of public relations

benefit and save money on energy costs. There are a

number of partnerships springing up to use the state and

federal tax and utility incentives for solar power systems,

so that it’s possible in about 17 states with such

inducements to get the solar power system financed by a

third-party at no initial cost to the developer or retailer.

Branding and marketing: Green buildings and solar

power offer a developer or retailer the rare opportunity to

“do well by doing good.” As part of a thoughtful

branding and marketing strategy, “green” and

“sustainable” are beneficial, but they have to be “real.”

The media are pretty well trained by now, or soon will

be, to recognize “greenwashing” by the retail sector, so

it’s best to have a strong corporate commitment to the

full extent of sustainable strategies before announcing

specific elements.

 

One should also think of the benefits in terms of

hiring and retaining good employees; in today’s talentshort

world, getting and keeping good people may be a

primary benefit realized by greening the retail center and

retail store.

 

 

V. Challenges for Greening the Retail Sector

The first and foremost challenge to greening the

retail sector is cost. Other challenges include the

capabilities of the design and construction teams to

provide green features on conventional budgets; the

question of which parties incur costs for green and which

parties get the benefits, and the writing of green tenant

guidelines.

 

Cost and benefits: The key issue in green building is

that “costs are real and present-tense, but benefits are

speculative and future-tense.” This means that a

developer makes an investment in green building features

and certification with the hope of getting some

significant return over time. This is not an unreasonable

thing to do, but right now it’s an exercise in leadership in

the industry to commit to a strong green building

program.

 

Getting a LEED certification for a green retail

development is initially going to cost more, and it’s not

clear that a developer can recoup these extra costs in

higher rents or faster lease-up, at least not right now. It is

possible that the developer may realize some marketing

and public relations benefits, but that is also speculation

at this point. Perhaps the greatest benefit may lie in a

faster entitlement process and perhaps some reduced

development fees—for example, a lower fee for storm

sewer hookups, if the development keeps all rainwater on

site, either for recharge, landscaping or beneficial re-use

in the buildings. In one case, a Lowe’s store in south

Austin, Texas, completed in 2005, reportedly benefited

from its commitment to building a LEED Silver building

by receiving all of its permits in three months instead of

the expected 15 months. The resulting early opening

yielded enough profits in 12 months to pay for the entire

building!

 

Hard and soft costs: It’s easy to make the distinction

between “hard” costs and “soft,” i.e., those for

construction and those for design and certification

services. In reality, all costs are hard for the company

that has to write the check! Nonetheless, the hard costs of

green, based on experience in other commercial projects

are shown in Table 3-1. These cost premiums are only

indicative. As with automobile fuel-efficiency claims,

“your mileage may vary.” We have been told of large

LEED Platinum projects being completed in 2007 for

less than a 2% cost premium, but these results typically

accrue to experienced developers or large institutions

with sophisticated project management teams.

It’s important to point out that all developers have

found that these cost premiums come down over time, as

they gain more experience with green projects. These

costs do not include the costs of including solar

technologies, but might include such things as innovative

storm water management, water conservation measures,

energy-efficiency investments, green materials,

construction-waste recycling and other sustainability

features contained in the LEED system.

In addition to hard costs, there are a range of soft

costs, such as additional architectural and engineering

fees, holding “eco-charrettes” for considering green

alternatives, and the LEED system documentation and

certification activities. Table 3-2 shows some of these

cost premiums.

 

Table 3-1

Hard Costs for Greening Your Projects

LEED Certification Level Cost Premium

Certified (Basic Level) 0%-2%

Silver 2%-4%

Gold 4%-6%

Platinum Above 6%

 

 

Note that the two most expensive are

things you probably want to do anyway, such as

modeling the energy use characteristics of your building

or buildings and commissioning the HVAC equipment to

make sure that it is working according to design intent.

Commissioning is a “high payoff” activity for most

projects, but is typically not done in the retail sector.

For smaller retail projects, the costs of green building

certification can definitely be a perceived barrier, unless

a company has a specific plan for realizing some the

benefits of green project recognition. For volume

builders15, the U.S. Green Building Council is developing

a “volume build” program that will allow a company to

certify the basic green elements of its prototype or typical

store, with documentation needed only for specific “site

credits” that are specific to each individual location. The

program aims to drive down the cost of green project

certification with the USGBC to levels that a retailer can

handle.

 

Design team capabilities: We need to point out that,

while there are more than 7,000 LEED projects

underway, less than 700 had been certified at the end of

2006. Part of this is owing to the time lag between

project registration (typically early in schematic design)

and the completion and certification of a project (which

can take two to three years). As a result of this gap

between interest and certification, most design (and

construction) teams who do retail work have not yet

completed a LEED project.

 

As a result, they are asking for premiums for adding

the LEED component to their scope of services, and they

are not comfortable with what it takes to make a project

“green.” In addition, their ability to deliver green features

on conventional budgets is suspect, and (unnecessary)

cost increases on early projects may result. In this

situation, a retail developer would be wise to insist that

the architect add an experienced green consultant to the

project team, to guide the entire team through the design,

product and system specification, and LEED certification

process.

 

 

Who benefits and who pays: The irony

in green retail is that it’s mostly the

developer who pays for such items as

extra insulation and better glazing,

more efficient lighting and higherefficiency

HVAC units, as well as

s t o rm wa t e r ma n a g eme n t ,

cons t ruc t ion-wa s t e r e cyc l ing

management, LEED certification and

the like, and it’s the tenant who

benefits, through the center’s advertising and

promotional efforts and through lower common-areamaintenance

(CAM) charges. While the developer

recovers some of these benefits through their non-billable

CAM charges (typically 20% or a little more), the tenants

enjoy the balance. Over the long run, lower operating

costs for energy, water and waste disposal should be

reflected in higher rents; at the beginning it’s typically

not possible to get rent increases. Restructuring a

standard lease to share some of the savings is possible,

but is not commonly done.

 

 

Tenant guidelines: Some developers certify to the

LEED for New Construction or the derivative LEED for

Retail standard, while others prefer to use the LEED for

Core and Shell rating system, with its “precertification”

benefit. In either case, having gone to the effort to green

the retail center, a developer often wants to write tenant

guidelines that will ask or require tenants to use

sustainable design and construction measures in their

own space. In the LEED rating system, a strong set of

tenant guidelines also qualifies for one credit point

toward certification of a center. These guidelines could

cover such items as using low-toxicity paints, adhesives,

sealants and carpets in tenant buildout; using more

efficient lighting systems, and a wide variety of other

measures that are covered in the LEED for Commercial

Interiors (Retail) rating system. If the guidelines are not

required, then developers would be wise to engage in a

strong tenant education program, starting with the lease

negotiations. This may provoke discomfort among the

brokers working for both developer and tenant; therefore,

a clear set of guidelines, with attention to how they’re

written and promoted is a key part of the process.

 

 

VI. Looking Ahead

In terms of greening the retail sector, there’s little

doubt that the retail landscape will look much different

by 2010. The number of large retailers announcing green

building initiatives will accelerate in 2007 and probably

reach a crescendo in the 2008-2009 period. The number

15 This includes retailers with small buildings, such as bank branches, and companies, such as Home Depot, Lowe’s and Wal-Mart with very large stores.

Cost Category Estimated Cost

Design Services 0%-10% (depending on experience)

Building Energy Modeling or

Prescriptive Design Analysis

$15,000- $30,000

Building Commissioning 40-70 cents per sq.ft., $20,000 minimum

LEED consultant/certification effort $25,000 (varies by project size)

LEED registration and certification fees

(USGBC Members)

$450 registration fee, plus 035 cents per

sq.ft. for certification review; $17,500

maximum fee

 

 

Soft Costs for Greening Your Projects

of shopping center developers in the U.S. and Canada

building certified green retail centers will increase, so

that we should be seeing hundreds of new projects

registered each year and dozens being completed. The

engagement of center developers with the public sector,

in terms of entitlement benefits and green project

requirements will feed this trend.

For green buildings as a whole, I have used a theory

of market growth called “diffusion of innovations” to

predict the overall growth of commercial and

institutional-sector LEED for New Construction project

registrations through 2012, as shown in Chart 3-2. The

projection uses actual LEED project registration data

from the U.S. Green Building Council for 2000 through

2006, with projections for subsequent years. While the

retail sector is starting late, it is safe to say that the

growth of green projects will follow a similar curve for

adopting green technologies and green approaches. Right

now, the market opportunity is ripe for “innovators” and

“early adopters” to start building green projects, get a

better understanding of costs, marketing and other

benefits, and begin to green their entire set of retail

operations.