The Cost of Green Construction

May 11, 2015
Posted by in Energy Efficiency, Government, Grants, Incentives & Schemes, Non Residential Property | Tagged , , , , , |

cost of green construc

What impact does cost have on decisions about sustainability? Andrew Smith, Director in our Cost Consultancy team examines the cost of going green and looks at the incentives.

Almost every part of a new building can be designed and built more sustainably, but there is, more often than not, a cost premium of doing so. Optimising energy use, for example, will probably require a better performing building envelope, as well as more sophisticated energy management and monitoring technology.

Recent research shows that the additional cost of achieving a BREEAM rating of Very Good is minimal and the additional cost to upgrade from Very Good to Excellent may be in the region of 2% to 5%. The cost to achieve BREEAM Outstanding, the highest level of performance, can be significantly more however this is only targeted by the top 1% of properties and represents the “exemplar” or “world class” category in the current market. With BREEAM Very Good being the minimum standard now required by many local planning authorities what is the motivation and what incentives exist to encourage developers to go beyond this level and pay the additional cost needed to achieve the higher sustainability standards?

The majority of the Government’s construction legislation takes the “stick” approach, setting minimum standards for energy performance and requiring an understanding of carbon reduction measures that reflect the wider global agenda on sustainability and climate change. The direct impact on construction costs can be seen, for example, in the introduction of landfill taxes on the removal and processing of waste in 1996. This is now reflected in greater attention to recycling and waste avoidance. More demanding Building Regulations have also made it more expensive to build, but at the same time purchasers and occupiers have begun to value sustainability when they make buying choices.

So, is the carrot approach a more effective way of achieving the wider adoption of sustainable practices in the marketplace? Successive UK Governments have sought to introduce regulations (such as the Climate Change Act), in part to meet international protocols but also to incentivise innovation and the adoption of green technology. One effective example is the Enhanced Capital Allowances scheme which promotes investment in energy and water efficient equipment and systems. Whilst a limited number of components and products qualified for this favourable tax relief, there is now widespread adoption by end users. Indeed in some instances, there is a considerable benefit associated with selecting these components over non-qualifying assets. Furthermore, the UK is not short of quality timber manufacturers who produce construction timber from sustainable sources.

Real change needs everyone involved in the development of buildings to take a longer term view of the benefits that can be achieved over the full life cycle of a building, or a fit out project, looking beyond the initial capital cost. For example, the decision to install more expensive LED lighting, rather than standard fluorescent lamps, brings benefits from increased energy efficiency, reliability and longer lamp life, and due to falling costs can reduce the payback period in refurbishment projects to less than 2 years.

As an industry we need to look at the bigger picture and see the long term benefit of sustainable choices when we make decisions about the way we build, fit-out and refurbish our buildings. As market awareness continues to increase, the cost of going green will provide financial benefits in the future both for the occupier (reduced operating costs improved productivity) and the investor (increase in value). Through a combination of effective legislation, the value placed on corporate social responsibility by businesses and individuals’ willingness to look beyond the short term the built environment can help deliver a positive and sustainable change.

Andrew Smith
Director, CBRE Building Consultancy
T: +4420 7182 3575
andrew.smith2@cbre.com