Why More Industrial Developers Are Adopting Green Building Practices

Green building standards are growing in industrial development—an asset class that is traditionally linked with dirt and pollution. Today’s industrial buildings are much different, and they are rapidly evolving. There are a number of forces driving industrial developers toward green policies, starting with institutional capital, which has deeply penetrated the industrial market this cycle, often has environmental, social and governance requirements that industrial developers must follow and fortune 500 companies, which are largely looking to reduce carbon emissions and achieve environmental goals.

“Institutional capital sources throughout the world are mindful of ESG goals, which are arguably more prevalent outside of the U.S. than they are domestically right now. Given the flood of real estate capital to the U.S. – whether that is in industrial, office, retail or multi-family—the greater push toward green buildings is really no surprise,” Jon Pharris, president of CapRock Partners, tells GlobeSt.com. “Fortune 1000-caliber companies often have explicit shareholder goals to reduce their carbon footprint. Many of the largest companies have multiple distribution centers throughout the nation and world and see green building as a tool to achieve company-wide environmental goals. Some companies will only occupy LEED Certified industrial buildings, although this is still rare.”

In addition to regulations implemented by corporate and institutional capital sources, government programs, like CalGreen and LEED certification, has also encouraged and required more green building. “Here in California, new developments must comply with the California Green Building Code, commonly referred to as CalGreen. CalGreen is amongst the strictest environmental standards in the country and includes items such as mandatory electric vehicle charging stations, bicycle parking areas, light pollution deterrents and recycled irrigation water,” says Pharris.

Of course, CEQA in California has also helped to drive cleaner industrial developments and properties. “In order to comply with the California Environmental Quality Act, certain municipalities have created checklists to ensure new developments comply with the city’s general plan, specific plan, and supporting documents such as an environmental impact report,” adds Pharris. “These checklists can include some obvious items such as solar panels, electric vehicle charging stations, or white scrim roofs, but can also include more unexpected requirements such as dish washers in speculative office areas.”

Ultimately, green building reduces the footprint or energy usage of a property. That can include better more efficient layouts, a white reflective roof coating and installation of photovoltaic solar panels, recycled irrigation water, drought resistant landscaping and electric vehicle charging stations. “Incorporating certain design elements such as extra warehouse skylights for natural lighting, locally sourced or previously-used materials and LED lighting throughout can also make a difference,” says Pharris.

While these groups are pushing industrial into a greener future, Pharris, an experience industrial developer, says that developers are still concerned with costs, and green-building standards must fit into the project budget. “No matter how many municipalities or stakeholder groups are pushing for green standards, developments still need to make economic sense,” he says. “Our philosophy at CapRock Partners is to be as green as possible and be good stewards of the environment while also maintaining an appropriate level of return for our investors. For example, most of our development projects exceed CalGreen standards or are LEED certified while providing attractive financial returns for our partners.”

Still, there are many ways for developers to implement cost-effective green building techniques and make them work financially. “No one-size-fits-all exists for all green industrial buildings,” says Pharris. “However, to comply with the various tiers within the LEED certification process, developers and builders must follow specific guidelines. The CalGreen standard is close to the base level of LEED Certification, which includes several tiered options. Buildings can be certified LEED Certified, Silver, Gold or Platinum. The ranking level determines how many points a specific project receives per the LEED checklist and are typically ranked on four categories: building materials, smart grid, water efficiency, and performance based.”