The financial benefits of owning green office buildings may be less clear than investors and landlords would hope, even as the issue climbs up the agenda for building owners and occupiers alike.
Analysts at Green Street Advisors, a real estate research firm, say they have “struggled” to find compelling evidence of material sale or rental premium for environmentally friendly buildings – although they add that the signs of what they call a “brown discount” are clearer.
Developers are under increasing pressure to prioritise the climate crisis when designing new buildings and retrofitting existing properties, and their strategies around environmental, social and governance issues are more frequently in the spotlight. Last month the UK Green Building Council published new energy efficiency targets for office buildings that aim to produce net zero carbon emissions.
Most European-listed office property companies are ramping up their sustainability reporting, Green Street notes. “For some, property portfolios are glowing green, whilst for others blinking faintly,” it adds.
Green Street’s Office Insights report notes that investors are now “grappling with how best to deal with the E within their ESG strategy”, and its team set out to “quantify the economics (if any) of going ‘green’ for office buildings located in Europe”.
“Academic studies allude to sizeable rent and sales premiums for certified buildings,” Green Street’s analysts write.
“However, conversations with institutional property investors, landlords and valuers do not lead to such straight-line conclusions. Pinpointing the sole effect of ‘green’ features has been noted as a key challenge. Besides being environmentally responsible, pundits allude to improved operational and financial performance of certified buildings.”
Certifications vary by country, the report says, and that lack of standardisation is problematic. “Some focus on the occupant, others on the building. Investors with an eye on financial returns are left wanting.”
Green Street’s report adds: “One cannot help but observe that some public-relations tick boxing is also involved. Nonetheless, the overriding theme of ESG investing is growing. In addition, large occupiers now show a distinct preference for green buildings.”
Green Street says its own data suggests “some indication” of higher occupancy for certified buildings. Any cost savings from going green typically benefit the tenant rather than landlord, the report adds.
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