La Jolla Commons, a 15-story, 346,000-square-foot office building developed by Hines in UTC, has been given a LEED certification. It is expected to be finished in June 2008.

If David Marino’s experience is any indication, promoters of green buildings in the commercial office market will have to do a lot better job convincing prospective tenants of the potential benefits of working in energy-efficient spaces.

Marino, principal and executive vice president of Irving Hughes, a commercial real estate company that represents only tenants, says he has seen absolutely no interest from his clients in leasing or buying green space.

"I do 50 to 60 leases a year for over 1 million square feet and I have never had a client put it in their top 10 criteria, or even mention it as a consideration that I can remember," says Marino.

While Marino agrees the green trend is important, he has seen no corporate tenants making it a part of their decision process. "They don’t care. The reality is that tenants can’t control how green a building is," Marino says. "The municipalities drive the bus on this as they dictate energy efficiency (and) recycling guidelines. The only real solution is for government to continue to be more pressing."

Other San Diego real estate brokers do not agree with Marino’s assessment of tenant apathy. But those who disagree with him also happen to be marketing huge commercial office projects that are highly rated for sustainability.

For example, Rick Reeder, office specialist with Grubb & Ellis|BRE Commercial, the leasing representative for La Jolla Commons, a 15-story, 346,000-square-foot office development under construction in University Towne Center, says the prospective lessees he talks with are large companies that give heavy consideration to green leasing. "The guys I am seeing are more established, larger companies that are conscious of more than just the space they will be leasing," says Reeder.

Jay Alexander, senior vice president of Colliers International, broker for Horizon Technology Center, being built by Opus West in Scripps Ranch, says all of his prospective tenants are interested in the green movement.

Both the Horizon Technology Center and La Jolla Commons have been certified as green or sustainable projects under the LEED rating system established by the nonprofit U.S. Green Building Council. A LEED rating (Leadership in Energy and Environmental Design) means a building uses key resources such as energy, water, materials and land more efficiently than buildings that are just built to code. Another rating system is Energy Star, which was introduced in 1992 by the Environmental Protection Agency to identify energy-efficient products to reduce greenhouse emissions.

The San Diego office of CoStar Group, a real estate research company, says the county has only 22 office properties that are under LEED or Energy Star certification, a total of 3.4 million square feet, which puts the region far behind other large urban areas in California in green office space. Norm Miller, professor and director of academic programs at the Burnham-Moores Center for Real Estate, says San Francisco has 30 office buildings and Los Angeles has 100 office buildings that are either LEED certified or Energy Star rated.

Yet Miller says green space is growing fast with more than 30 percent of all new U.S. office space getting the LEED or Energy Star rating. "It is hard to imagine any new office building over 50,000 square feet not being at least LEED certified," says Miller.

Although developers and brokers agree that LEED-certified offices are more expensive to build and command higher rents than non-certified offices, they yield benefits to building owners and tenants. "The developers of such green buildings get higher occupancy rates and also higher rents," says Miller. "These buildings also command lower cap rates, thus they sell for more per square foot than other buildings. In all, the benefits exceed the costs."

Alexander says offices in the Horizon Technology Center will lease for $2.40 per square foot triple net compared to other offices in the Interstate 15 business corridor, where rates range from $2.25 to $2.50 per square foot.

Marino agrees that tenants in green buildings will pay more. "Energy-saving glass, insulation and other energy-savings materials cost more which, in theory, gets passed through to the tenant as long as the market will support higher rents at that moment," he says. But he admits that the tenant can recover costs in some other manner. "When it’s related to making more powerful reflective glass or rooftops or better insulation, then there are clearly savings on electricity," he says. "That is a fact."

Green proponents say sustainable buildings have been shown to increase productivity, improve employee morale, lower absenteeism, retain employees and attract new ones. "All the big tenants are talking about this," says Chris Pascale, senior vice president of CB Richard Ellis. "It’s better for the bottom line. There’s something in it for them other than the increased costs. You get better work from your employees if you keep them comfortable."

Jay Paul Co.’s Summit Rancho Bernardo office project is billed as the largest green development in Southern California at 3.2 million square feet. The $1.2 billion develpment is expected to take seven to 10 years to complete, with the first phase delivered in early 2009. Ground breaking was in October.

Pascale is a leasing representative for Jay Paul Co.’s Summit Rancho Bernardo office project, which broke ground in October. He calls it the largest green project in Southern California. The $1.2 billion development will consist of 11 office towers and take seven to 10 years to complete. The first phase is expected in early 2009. "I’m negotiating with three possible tenants," says Pascale. "They all are only considering green."

In 2004, the U.S. Green Building Council created a new rating system specifically for commercial interiors (LEED-CI) to go along with its other ratings for new construction (LEED-NC) and existing buildings (LEED-EB).

LEED-CI is the first green rating system designed for tenants. A  report prepared for the Green Building Council says that the rating system has become the industry benchmark for tenant improvements.

"One reason for LEED-CI’s popularity may be the benefits gained by tenants," says report author Lacey Muszynski. The report says that sustainability not only affects traditional operating costs of an office, but other costs as well, such as absenteeism, sick days and productivity."

Marino’s contention that government is driving the green movement is disputed by Stephen Kapp, technology resources manager for the California Center for Sustainable Energy and president of the San Diego chapter of the U.S. Green Council. "Contrary to conventional wisdom, the private sector is driving this," says Kapp. "It’s strong confirmation that there is real value to this. I believe that 10 years from now, it will be a liability to own or manage a building that is not green."

"Only recently have public firms joined the bandwagon on sustainability," adds Miller. "Now, 70 percent of all public corporations have a policy statement encouraging sustainability and conservation. This provides impetus for what is being called the double bottom line – not just making profits but doing it in a sustainable way that does no harm."