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All too often, those engaged in examining options for “greening” a new or existing building are constrained in a stove-piped cost analysis which (in a very simplified fashion) goes something along these lines:

• How much more will it cost to build?
• And, how fast will energy and other operating cost (water usage/sewers, maintenance) savings pay for those additional costs?

This typical analytical structure is mistaken on multiple levels. For example, with a truly holistic systems-of-systems process “going green” can actually drove down the initial costs (or remain at levelized cost) because, for example, better insulated and sealed building envelopes enable smaller heating and cooling systems. Thus, the better insulation might increase capital costs while procuring a smaller HVAC system cuts them.

But, putting aside the quite legitimate question as to whether well-designed “greening” actually drives up costs, stove-piping analysis on operating cost savings to pay back increase upfront capital costs excludes what is likely to be the far more significant implications for things like productivity.

A new study, Green Building and Productivity (pdf), from researchers at the University of San Diego’s business school institute on real estate focuses directly on this issue. The core question could be phrased as follows:  Are workers in “green” buildings more or less productive than those in traditional structures?

The study examines a wide-range of issues related to the difficulties of measuring office productivity, various (potential) impacts on productivity, and studies related to these issues. For this effort, they use sick days and a “self-reported productivity percentage change after moving into a new building” as their metrics.  With this in mind, the research team surveyed 154 buildings with some 2000 tenants.

Across these buildings and tenants, they calculated an average salary/benefits of $106,644. And, when comparing “green” to non-green buildings, their work showed a reduction in sick leave of 2.88 days per year, on average, and a 4.88% productivity improvement.  That translates, based on the salaries, to a value to the employer of $1,228.54 due to reduced sick leave and $5,204 due to productivity increases.

Healthier buildings reduce sick time and increase productivity. The steps required to provide a healthier building are not that much of a design and engineering challenge. Generally natural light, good ventilation, the absence of organic compounds provides happier, healthier workers. Appropriate temperature ranges or localized controls is also a big plus to workers and past research does support the notion of greater productivity from any or all of these improvements. Sick building syndrome should be a thing of the past, but it is not. Energy Star-labeled buildings need not also be healthier although generally they appear to be and more recently we are finding a surge in LEED buildings which tend to require better and safer environments. We now have some evidence that there is an economic pay-off to tenants who pay attention to space quality.

Okay, a “healthier” working environment is more productive but what is the cost of that productivity?  Do the upfront costs outweigh those benefits?

What is increased productivity and reduced sick time worth in net present value terms? The early study by Greg Kats (2003) suggested NPV benefits in the range of $37 to $55 per square foot. For an owner-occupied building we can easily imagine NPVs equal to much more than these figures. For example, discounting $25 per year per square foot for 10 years at 10%, based on the sum of the two benefits shown above and rounded and assuming a 10-year differential for such benefits and a fairly conservative discount rate, we get a present value of $153.61 per square foot. It costs much less than this to building a better environment for workers, so the net present value certainly could reach $100 per square foot or more when an owner-occupant captures those benefits.

In other words, for an owner-occupied building, paying a $50+ premium for “green” on construction would provide a three-to-one payoff, in net present value terms over a 10 year period.

Oh, remember about “stove-piping”? Green Building and Productivity (pdf) is focused on that productivity question. It is not addressing the utility bill savings (lower energy and water use, reduced sewer fees due to rainwater capture, etc), reduced maintenance costs (such as white roofs lasting longer), and other operating savings that energy efficient “green” buildings show compared to traditional, built-to-code buildings. In other words, the payoff ratios are even better — especially because well-designed “green” projects might not even cost more to build.

We have quite a long way to go before there is true full value analysis in the cost-benefit equation of infrastructure (and other) investment decisions. Even recognizing those limitations, getting building owners (and occupants) to realize that the “greening” value goes beyond energy savings will be quite important.

For a related discussion, see: Greening the School House. Quite simply, Greening Schools is perhaps one of the clearest ‘no brainer’ no regrets strategies that we should be pursuing aggressively. I cannot think of another opportunity to boost educational performance while cutting costs and improving the health of our children and communities while also helping turn the tide on Global Warming.

Hat tip to Energy Management Canada for highlighting this study.