Green buildings worth more to investors
The greener the building, the more it is worth. That is the key finding from Knight Frank’s new Active Capital Report, which also forecasts 2022 will be a record year for global cross-border commercial real estate investment.
Ben Burston, chief economist at Knight Frank Australia, said analysis of more than 300 office sales over the past decade in Sydney and Melbourne revealed the impact of green credentials on asset values.
Offices with National Australian Built Environment Rating System (NABERS) energy ratings of up to 4.5 stars are worth an average of 8 per cent more than unrated buildings on a per square metre basis.
Buildings rated between five and six stars attracted an 18 per cent premium,
Mr Burston said while it was logical to conclude the higher-rated buildings were newer, and therefore more expensive, researchers made every attempt to isolate the NABERS rating as a factor in pricing.
“The finding clearly demonstrates that Environment Social Governance considerations are very real for investors today,” he said.
“Tenants are increasingly gravitating towards stock that offers a high degree of energy efficiency and this is impacting rental performance and allowances for downtime in buildings with vacant space.
“At the same time, investors are taking a forward-looking approach when assessing building value and view strong sustainability credentials as key to minimising risk.”
He said this trend will inevitably increase as more tenants adopt environmental targets.
“Under-performing assets will come under greater pressure from a reduced pool of potential tenants and buyers,” Mr Burston said.
“This is likely to increase the differential in values between high- and low-performing assets in years to come.”
Knight Frank also researched the impact of environmental ratings on office prices in London, where they found it was less but still significant.
Highly rated office buildings in the city cost 10 per cent more than comparable unrated workplaces.
On the investment front, Knight Frank predicts foreign investment in Australian commercial property during 2022 will increase 25 per cent year-on-year to reach $10 billion. Logistics assets will be the primary target.
The United States, United Kingdom, Germany and France commercial real estate markets will receive the greatest influx of cross-border investment.
“This year’s research suggests a resurgence of investment flows into real estate, signalling a marked return of investor confidence,” Mr Burston said.
In Australia, “we expect a recovery to commence in occupier markets, leading to a pick-up in investor activity during 2022.”
