Green Buildings: The Often-Overlooked Safe Haven in an Economic Storm

Consumer confidence isdeclining, regional manufacturersanticipateprice increases and fewer orders, whilefive-year inflation expectationshave risen to their highest level in over 30 years.Stagflationis becoming a real possibility, and JP Morganestimates a 60% probability of recession this year。

Even so, facility managers responsible for green buildings or seeking to enhance the sustainability of their properties can take some comfort in the premium position that green buildings occupy in the current economy.

While some investors may not be closely following green buildings, or may not yet realize they constitute a distinct investment category, this sector actually offers an excellentsafe haven—both literally and figuratively: green buildings are more resilient to extreme weather. Both history and the fundamentals of the green real estate market demonstrate this.

This may seem counterintuitive—green buildings are often seen aspremiumproducts, and people tend to seeksubstitutenecessities during difficult economic times. However, the growth rate of green buildings rose rapidly during the crisis. The U.S. green building marketgrew by 50%between 2008 and 2010. By 2011,one-third of all new non-residential buildingswere green buildings. This became one of the few bright spots in the worst economy in recent decades.

So what exactly happened during that difficult economic period? Demand for office buildings, commercial real estate, and even residential properties plummeted. Office vacancy rates in almost all major citiesexceeded 10%, with some cities far higher. Owners seeking to lease properties needed to quickly find a differentiator against other property managers who were increasingly desperate and overcapacity. Green retrofits and new construction proved to be alow-costandeffectivemeans of differentiation, delivering substantial long-term returns on investment.

Today, the same factors are still at play; in fact, due to the rise of remote work and an uncertain tariff environment, the pressure on commercial real estate may now be even stronger. Although currently about20%of office space is vacant—and giventhe failure of return-to-office mandates, this percentage is unlikely to decline—the same is not true for green buildings. According to JLL, we can onlymeet 34% of the demand for green office space. Given such enormous unmet demand, any green office space entering the market is likely to find eager tenants more quickly.

Tariffs provide another impetus for green buildings, a factor that did not exist during 2008-2009. Thanks to the unique attributes of green building materials, the cost of green buildings is unlikely to rise nearly as fast as that of ordinary buildings. A hallmark feature of green buildings is the local sourcing of building materials. The shorter the distance materials are transported, the lower their embodied carbon. Given the immense weight of building materials such as steel beams and concrete, reducing transport distances can make a huge difference.

Needless to say, building materials "imported"importedfrom "across town" are not subject to tariffs.

More importantly, since the U.S. leads in green building materials such as low-carbon steel and low-carbon concrete, green builders will not face the same difficulties in securing supply as their counterparts who rely on overseas imports.

This does not mean that green buildings can shield owners from the dangerous combination of recession, tariffs, and inflation concerns. Global supply chains are complex, and tariffs will inevitably cause disruption and delays. Recessions typically dampen overall demand. No one wants a more difficult economy.

But a difficult economy should also prompt investors to turn to safe investments with clear, predictable returns. In a weak market, green buildings are almost the closest thing to a sure bet. They are precisely a safe haven in the storm.