CBRE presents

Green Building Adoption Index 2015 June 2015

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!  $1,000,000 academic challenge launched in 2012

!  Developed to support academic work seeking sustainable solutions for the built environment

!  Provides both funding and active access to CBRE platform, clients and personnel to assist in pursuing projects

!  Five projects underway: Green Building Adoption Index (GBAI) is first published project, 2nd edition

About the Real Green Research Challenge GREEN BUILDING ADOPTION INDEX

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!  Chief objective: Quantify and understand the dynamics of certified green building space in the top 30 US markets

!  Led by: Dr. Nils Kok, Maastricht University in collaboration with Rogier Holtermans, Maastricht University

!  Data provided by USGBC and CBRE Research

About GBAI GREEN BUILDING ADOPTION INDEX

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Residential and commercial sector consume 81% of US total

ELECTRICITY CONSUMPTION AND THE BUILT ENVIRONMENT

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Small improvements in buildings can have large effects !  Carbon emissions and buildings are closely related

•  30-40 percent of global GHG emissions !  Built environment offers largest potential for greenhouse gas abatement

•  IPCC (2007), Stern (2008), McKinsey cost abatement curve

Impact of energy costs directly affects tenants and investors •  30 percent of operating expenses, 10 percent of total housing costs •  Commercial buildings use 50 percent of energy, costing $400 billion •  Salience can only increase with rising energy prices

Awareness is growing !  Corporate real estate as part of CSR policy !  Investor focus on energy efficiency !  Legislation

Consequences are a global (economic) threat SUBSTANTIAL ENVIRONMENTAL EXTERNALITIES

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How to reduce energy consumption in the property sector?

!  Raise energy prices •  Cap-and-trade in California, Europe, UK

!  Stricter building codes and subsidizing retrofits

•  Works, but mostly for new construction, and effects are small –  Building codes for residential homes are effective at saving energy

•  Fiscal belt-tightening constrains subsidies and effects are unclear

!  Stimulating market efficiency through transparency (energy labels) •  Investments in energy efficiency may lead to:

–  Save on current resources, insure against future price increases –  Higher transaction prices

Alternatively: voluntary labels

Energy efficiency debate prominent in policy circles SOME POLICY RESPONSES

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!  EPAs Energy Star for Commercial Buildings (26,000 buildings, 3.8bln. sqft) •  Efficiency in source energy use is in top quarter relative to CBECS •  Standardized for building use (occupancy, hours) and climate •  Certified by professional engineer •  Based on real energy consumption (at least one year of bills)

!  USGBCs Leadership in Energy and Environmental Design (23,000, 2.9bln. sqft)

•  Scoring systems based on 6 components of “sustainability” •  Energy efficiency is just one component •  Various systems and versions (e.g. NC, EB, O&M, ...) •  Based on design stage (and now verified after construction)

!  Similar schemes exist internationally (BREEAM, HQE, DGNB, CASBEE, Green Star,

HK BEAM, etc.)

Two programs: Energy Star (EPA) and LEED (USGBC) “GREEN” BUILDINGS IN THE US

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Measuring the fraction of green in the CRE market

Geographic boundaries for the 30 largest CBRE markets

Identification of labeled office space per market

GREEN BUILDING ADOPTION INDICES

LEED and Energy Star •  Office only •  Tracking threshold •  No LEED CI •  No medical or government occupied

buildings

Label Vintage •  Correct for label “depreciation” •  5 years for LEED •  2 years for Energy Star

Ratios •  Number of buildings •  Sq. ft. of space

Developed in partnership with the USGBC and CBRE

Diffusion of LEED and Energy Star (2005 – 2014)

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NATIONAL ADOPTION OF LEED AND ENERGY STAR Significant growth over past decade

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NATIONAL ADOPTION OF ENERGY STAR LABELS Growth in diffusion seems to slow

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NATIONAL ADOPTION OF THE LEED PROGRAM Later start, rapid increase in past five years

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BREAKING DOWN THE DIFFERENT LEED PROGRAMS LEED EB accelerates diffusion

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ADOPTION ACROSS LEED PROGRAMS LEED EB accounts for 75%

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NATIONAL FINDINGS Expansion

2005 2014

Green buildings Total square feet 5.60% " 38.7%

Total number 1.50% " 13.1%

Energy Star Labeled Total square feet 5.10% " 27.8%

Total number 1.30% " 9.7%

LEED certified Total square feet 0.40% " 20.3%

Total number 0.14% " 5.3%

LEED EB certified Total square feet 0.11% " 16.2%

Total number 0.03% " 3.4%

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GREEN BUILDING ADOPTION INDEX Size Tranches Sq. Footage

Under 100K

100- 250K

250- 500K 500K+

Total # of Green Buildings 4.5% 24.4% 54.6% 62.3%

Total sq. ft. of Green Buildings 7.0% 26.4% 67.1% 76.0%

Total # of ENERGY STAR Labeled 3.1% 19.2% 39.6% 43.5%

Total sq. ft. of ENERGY STAR Labeled 5.1% 20.7% 46.8% 50.3%

Total # of LEED Certified 1.5% 7.9% 29.0% 38.8%

Total sq. ft. of LEED Certified 2.1% 8.8% 39.9% 50.7%

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TOP 10 GREENEST CITIES Highest percentage of green building square footage

RANK MARKET SQ. FT. 1 Minneapolis/St. Paul 70.4% 2 San Francisco 70.0% 3 Chicago 63.4% 4 Atlanta 57.9% 5 Houston 52.8% 6 Denver 48.7% 7 Los Angeles 47.1% 8 Washington, D.C. 42.3% 9 Miami 41.6% 10 Seattle 40.1%

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GREEN CHALLENGED CITIES Lowest percentage of green building square footage RANK MARKET SQ. FT. 20 Sacramento 30.8% 21 Boston 30.7% 22 San Jose 28.6% 23 St. Louis 21.5% 24 Baltimore 17.2% 25 Detroit 16.1% 26 New Jersey 15.7% 27 Milwaukee 14.4% 28 Pittsburgh 13.3% 29 Stamford 12.9% 30 Kansas City 10.9%

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OUTCOMES !  First tier, coastal city !  Environmentally committed community !  City mandated green building regulations !  State mandated green building regulations:

AB1103, Title 24 !  Globally diverse, institutional ownership !  Motivated, committed tenant demand !  New construction boom

#2 SAN FRANCISCO

San Francisco Q4 2014 # of Bldgs sq. ft. of Bldgs Total 17.98 70.0 Energy Star 14.88 52.33 LEED 7.57 39.24

Existing Buildings 6.54 37.51 New Construction 0.15 0.02 Core and Shell 0.88 1.71

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#30 KANSAS CITY

Kansas City Q4 2014 # of Bldgs sq. ft. of Bldgs Total 3.30 10.9 Energy Star 1.76 9.61 LEED 1.76 5.45

Existing Buildings 0.55 3.10 New Construction 0.99 2.01 Core and Shell 0.22 0.34

OUTCOMES !  Older existing building stock !  Limited new construction !  Limited tenant interest !  Limited ownership interest !  Limited institutional ownership !  New city council ordinance mandating

energy benchmarking and disclosure

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Understanding the supply of green building space TAKEAWAYS

Large geographic variation in adoption of ENERGY STAR and LEED !  Leading: Large, first-tier, often coastal, cities !  Lowest Adoption: Small, second-tier,

interior cities

Green certified buildings represent a major share of the office market !  13% certified office stock vs. just 1.5% in

2005 !  39% certified office space vs. less than 6%

in 2005

Adoption much higher in larger buildings

Some markets may have reached a saturation point

Markets with overall low adoption do show promising growth in adoption of certification for new construction

First movers are now seeking new ways to differentiate… wellness/ occupant experience gaining traction

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WHAT’S NEXT?

!  Study updated annually

!  Expand to global review in 2016

!  Focus on impacts of: •  City/state disclosure rules •  Tougher LEED EB IV standards •  Updated 2012 EPA Energy Star CBECS data on

scores and certification level

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THE GREEN BUILDING ADOPTION INDEX Q & A

CBRE © 2014 All Rights Reserved. All information included in this proposal pertaining to CBRE—including but not limited to its operations, employees, technology and clients—are proprietary and confidential, and are supplied with the understanding that they will be held in confidence and not disclosed to third parties without the prior written consent of CBRE. This letter/proposal is intended solely as a preliminary expression of general intentions and is to be used for discussion purposes only. The parties intend that neither shall have any contractual obligations to the other with respect to the matters referred herein unless and until a definitive agreement has been fully executed and delivered by the parties. The parties agree that this letter/proposal is not intended to create any agreement or obligation by either party to negotiate a definitive lease/purchase and sale agreement and imposes no duty whatsoever on either party to continue negotiations, including without limitation any obligation to negotiate in good faith or in any way other than at arm’s length. Prior to delivery of a definitive executed agreement, and without any liability to the other party, either party may (1) propose different terms from those summarized herein, (2) enter into negotiations with other parties and/or (3) unilaterally terminate all negotiations with the other party hereto. CBRE and the CBRE logo are service marks of CBRE, Inc. and/or its affiliated or related companies in the United States and other countries. All other marks displayed on this document are the property of their respective owners.

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