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Green Apartment Construction Blossoming, Yet Renter Survey Shows $560 Rent Premium is 5 Times Higher than Most Would Pay

Green apartment construction

Study highlights:

  • The number of new green-certified apartments expected to rise by 32% in 2016, exceeding 59,000 units by the end of the year 
  • Chicago, IL tops the list of cities with most green-certified apartments on the market – 13,800 units (as shown by data from Yardi Matrix)
  • Average rent in green-certified apartments is $560 more than in regular new apartments, while most surveyed renters are willing to pay up to only $100 more

When it comes to trends in real estate, some are transient, and some are here to stay and shape the industry. Sustainable buildings are proving to be the latter. Their ubiquitous presence all over the country is possibly the best clue that green living is quickly going from niche to mainstream in real estate. Investors, developers, architects and consumers are realizing the importance and benefits of building by standards that meet the needs of present and future generations. We are interested to see how eco-friendly is the multifamily sector and what it means for renters.

We dissected Yardi Matrix’s national inventory of over 14 million apartment units located in large rental buildings of 50 units or more, in 123 U.S. metros, to see how much has been built nationwide. Our research shows that 44,800 new LEED-certified green units opened in 2015 in large-scale developments across the nation, 13 times more than there were in 2008. In 2016, about 30,000 were open or under construction as of mid-year, and we project a total of approximately 59,000 green-certified apartments to be completed by the end of this year, 4 times as many as 5 years ago.


Energy-efficient construction is encouraged by the latest building codes. But some apartment developers go further than the minimum requirements — they seek LEED certification. LEED is the most widely-used certification system for green buildings, a recognized green standard worldwide. The U.S. Green Building Council’s records show that as of October 2016, there were 3,187 green multifamily residential projects in the U.S. That number includes projects that are LEED-certified or in the process of LEED-certification.

The evolution of green apartment construction since 2008

About 15% of what was built after 2008 in the multifamily sector is sustainable. It may not seem like a lot, but we’ve come a long way since 8 years ago, when LEED certification started being widely-used for multi-family projects. In 2008, only 2% of large-scale multifamily buildings were green.

Green rental apartments

Source: Yardi Matrix

U.S. cities that “LEED” the green apartment movement

Next, we zoomed in to the city level, to compare U.S. cities to one another, and to find out what green apartments look like and how much rent they command compared to non-green apartments. Here are the most interesting findings: 

Top Cities with most green apartments

Source: Yardi Matrix

Chicago has the highest number of green apartment units, 13,800 in 62 large residential buildings. Illinois is the leading state for LEED green building per capita in the U.S.  and it currently has 296 green multifamily residential projects. About 34% of all of Chicago’s new large-scale apartment buildings (built since 2009) are green.

Seattle, WA is the only other U.S. city with more than 10,000 green apartments on the market right now, 11,200 green units in 87 residential buildings (the largest number of green multifamily buildings of any city in the U.S.). About 27% of what has been built since 2009 in the large-scale multifamily segment in Seattle is green.

One of the most forward-thinking cities in the country, Portland, OR currently offers 8,000 green apartments in 68 buildings. What’s even more impressive is that 45% of Portland’s total post-2009 apartment construction is green. 

The greenest cities for renters, however, are those that have the most choices for renting green. When we factor in the total number of green apartments in relation to the total population, Cambridge, MA has the best ratio of people to green apartments, 1 green rental for every 39 people. Second is Seattle (again!) with 1 green rental to 61 people, Alexandria, VA 1 to 70, Redmond, WA 1-77 and, not surprisingly, Portland 1-79.

Greenest cities for renters

Source: Yardi Matrix

Green-certified apartments cost a staggering $560/month more than regular new apartments

Yardi Matrix rent data shows that green-certified apartments cost on average an extra $560 per month or 33% more than new non-green apartments. They are also smaller, offering 73 fewer square feet of space than regular new apartments. More precisely, new non-green apartment units (built in 2009 or later) average 955 sq. ft. in size and cost $1,700 in rent, nationally. Green units built during the same period of time average 882 sq. ft. in size and $2,260 in rent. The rent differences maintain across all asset classes (high-end, mid-range or affordably-priced apartments). 

Rent in a new green-certified apartment is $560/mo higher than a regular new apartment Click To Tweet

Renter survey revealed big discrepancy between actual cost and what renters are willing to pay

We wanted to see how renters feel about energy-efficient apartments and how much they would pay to live in a green building. A recent RENTCafé  survey of 2,631 renters shows that 69% of those surveyed are interested to live in an energy-efficient or green building. However, their actual willingness or ability to pay the cost of renting a green-certified apartment is well below the real price of green apartments. The majority (52%) of those that expressed interest in renting green are willing to pay no more than $100/month extra rent for a green apartment, much less than the rent premium of $560 that green apartments demand. This tells us that prices still have a long way to go (down) until they align with what most renters are willing to pay. 

Here’s a breakdown by how much extra renters would pay for a green-certified apartment: 

  • $0: 23.5% of respondents
  • $1-$100: 52% of respondents
  • $101-$300: 10% of respondents
  • $301–$500: 4.5% of respondents
  • More than $500: 10% of respondents

The interest for green living is evenly distributed across all generations: 34% are Millennials, 34% are Gen-Xers and 32% are Baby-Boomers.  The largest share of those willing to spend more than $500 in additional rent for a green-certified apartment is made of Baby-Boomers.

Our survey also revealed that the most popular green apartment features are “energy-saving appliances and thermostats,” followed by “water-saving plumbing” and “eco-friendly transportation options.”

Although there aren’t many reports on specific long term energy savings, renting green brings along some savings in terms of energy and maintenance costs, as well as health benefits such as better air quality and temperature comfort, not to mention that priceless “do-good feeling.” But these added benefits come at premium prices, preventing many from leading the sustainable life they desire. Here are the cities where we see the biggest differences in price: 

Building green as part of a social movement

This “eco-minded” social movement is nothing new, each generation has had its own footprint. Nowadays, we see it in the behavior of the consumer segment coined by sociologists as “cultural creatives.” They are consumers who promote sustainability through their daily habits, they eat healthier, buy organic local produce, drive electric cars, buy fair-trade products. They show a growing interest in using less resources, they want to live and work in buildings that use materials, finishes and fixtures that have a good impact on the community and the environment. They are more or less the target renters for the green multi-family sector and the real estate market is responding.

Apartments for Rent Union SLU 905 Dexter Avenue North Seattle, WA 98109

Source: RENTCafé

Union SLU in downtown Seattle is a LEED Silver-certified 284-apartment community opened in 2013. It was built with eco-conscious residents in mind, offering plenty of sustainable-living features: electric car charging stations, priority parking for energy-efficient or electric cars, bike storage, bike racks, walkable location, resident gardening p-patches, energy-efficient appliances and more. Rates here start in the $1,500’s for studios and up to the $5,600’s for 2-bedroom apartments.

For a long time, “green” was not a decision factor when choosing a rental apartment, but now for many renters it finally is. The industry has gotten more familiar with green buildings, and it’s getting cheaper and more efficient to build green. So, in theory, green living should become increasingly accessible to more people. While there’s a rising interest in renting green apartments, for the time being rent prices continue to be the drawback for most.

Methodology:

  • Property and rent data was compiled from Yardi Matrix, our sister company specialized in multi-family market research
  • Property and rent data as of June 2016
  • LEED-certification was cross-checked with USGBC’s public records
  • We consider “green buildings” multi-family projects that are LEED-certified or proposed for LEED certification
  • Study includes only large-scale apartment buildings of 50 units or more
  • New York, NY data covers only the borough of Manhattan
  • Average rent comparisons were performed in U.S. cities with at least 5 green multi-family buildings
  • Unit count was rounded to the nearest hundred
  • The total number of green units projected for 2016 was compiled by adding the number of LEED certifications and pending LEED applications as of the first half of the year plus an estimated number of LEED applications expected for the second half of the year; the estimation is based on the average number of LEED-certifications received and LEED applications submitted in the second halves of the previous 4 years

Fair use and redistribution

We encourage you and freely grant you permission to reuse, host, or repost the images in this article. When doing so, we only ask that you kindly attribute the authors by linking to RENTCafe.com or this page, so that your readers can learn more about this project, the research behind it and its methodology.

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About the author

Nadia Balint

Nadia Balint is an online content developer and creative writer for RENTCafé. She loves writing and reading about real estate, lifestyle and travel. She finds joy and inspiration in the little things in life. You can get in touch with Nadia via email: nadia.balint@yardi.com.

6 Comments

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  • I don’t see evidence of the huge rent disparity within markets as you indicate from your utilization of the Yardi data. What I do see is disproportional concentration of green compliant construction in the most expensive urban land markets and sub-markets in the country, which when you compare these markets to the overall country and other sub-markets, the same $500 rent differential exists, everytime, regardless of greening. If you scatter plot the same data, it would be a much more relevant means to make this argument and test the hypothesis. My guess is there is a marketing benefit, and my guess it is probably closer to what the consumers are suggesting, $100, which is still nothing to sneeze at. It is a good number.

    My company spends a tremendous amount of money on energy efficiency and greening in retrofitting and renovating older communities. The incremental cost of seeking LEED certification on cost conscious, non-subsidy, retrofits is difficult to justify, but that does not mean we don’t do all or materially all of the same work that would lead to differing levels of certification. When we are done with our projects, we have a difficult time conveying the economic benefits to our future and current residents and the savings they will get from having better mechanical systems, plumbing systems, insulation and air flow, all of which reduce occupancy cost for the tenant (utility consumption is often times 30% lower when we finish). We do earn some form of return, but it is certainly hard to measure, and in no way, shape or form is it approaching levels that would show a $500 rent premium (our average rents are less than $1,000 to start with).

    Has anyone tried to do a scatter plotting on the same data? $500+ just seems wholly unsupportable, except that the green property development takes place in locations and of a certain quality standard (doorman, elevator, cbd, etc.) that probably explains the differential more accurately.

    In Chicago, for elevator doormen buildings greater than 20 stories, what are the rent differentials for the post 2009 green and non-green buildings? That is the relevant stat, which i don’t have ready access to. What I think you may find is that nearly everything built of this quality and in this time frame in downtown Chicago market is being built as green certified. The location and incremental cost of the certification is irrelevant in these land constrained markets where land cost is so high already. Certification is a rounding error. My preliminary rent search (which admittedly is just looking at highrise rents in Chicago) shows that while greening is an essential component of high end, down town marketing in Chicago, there is actually very little rent differential in any newer downtown Chicago structure, except by its location and overall building quality.

    Am I mistaken?

    • Bill, you make some very good points. One thing to keep in mind though is that the $500+ rent difference is a national average based on apartment rents in large-scale buildings (50+ units) located in 123 U.S. markets. Rent prices vary widely from market to market. Our infographic titled: “The highest rent differences in newly-built apartments: green vs non-green” gives some specific examples of the cities where we found the highest rent premiums for green apartments, which also means that those cities that didn’t make it on the infographic had even smaller percentage differences between green and non-green rents. If you select the second tab/button (Average Rent) on the infographic, you can hover over and see the $$ amount for the average rent in each city, including Chicago ($2,692 vs $2,269). Our study also found that: “About 34% of all of Chicago’s new large-scale apartment buildings (built since 2009) are green.” We decided to categorize as “green” only those apartment buildings that are LEED-certified, because the certification offered us a concrete measure against which to compare. However, you are correct that many of the newer apartment buildings are energy-efficient and green by other standards.