Experienced developers say the cost of designing and constructing green buildings from scratch is only nominally more than a conventional building. “The premium for a green building today is between 1 percent and 3 percent of construction costs,” says Bill Hankowsky, chairman, president and CEO, Liberty Property Trust (NYSE: LRY). The reason is that materials and equipment important to environmentally friendly projects have fallen in cost and risen in availability thanks to increasing demand.

A complete energy efficiency package can hold the green premium to the lower level. “The return on energy efficiency brings the premium down to 1 percent,” says Stuart Brodsky, national program manager for the U. S. Environmental Protection Agency’s (EPA) commercial real estate sector. He says components of a complete energy efficiency package include heating, cooling, energy recovery, insulation, and lighting systems.

Another way to evaluate the return on green investments is to look at operating expenses. Suppose an office owner charges $10 per square foot for rent and $8 per square foot for operating expenses including utilities. “Depending on the market, sustainable building practices could lower operating expenses by $1 per square foot,” Hankowsky says.

In light of the lower operating expense, an office owner might raise the rent on the property to $11 per square foot while cutting the operating cost passed through to tenants to $7 per square foot, Hankowsky continues. Of course, it is also possible to maintain the rent at $10 and lower the operating costs to $7, if the competitive market situation calls for it. In short, green building practices offer office owners more flexibility in setting rents and operating cost levels while holding buildings.

“Our research shows that $1 per square foot invested in energy efficiency can improve the financial performance of a building and potentially lead to a $2 to $3 per square foot increase in market value,” Brodsky says. He says that for a 200,000 square foot building, a $3 per square feet increase in market value can add $600,000 to the value of the property when it is sold.