Value of Sustainable Building Features
June 1, 2023
The latest report from CBRE examines the relationship between sustainable building features and value. We explore in the report investor and occupier attitudes towards paying for ESG-friendly assets, the evidence of premiums of these assets, and discounts for their absence.
There is on the market an ever-increasing amount of “green premium” literature which aims to demonstrate that sustainable features add financial value to buildings. Such features include those which:
- Tackle climate change and/or allow a building to adapt to its effects
- Improve energy performance
- Reduce fuel consumption and carbon emissions
- Reduce water and waste usage
- Promote biodiversity and awareness of the impact of a building on its surroundings
Our latest report tackles the same subjects and summarises clear evidence of a “green premium” across different asset classes. This can be seen through different parameters as office buildings with sustainability certifications earn a 6% rental premium over their non-certified peers and Logistics properties with BREEAM certification achieve a 25bps five-year median valuation premium compared to market Prime Net Yield.
However, further work is needed to improve and widen the evidence base, and the earlier mentioned premiums are likely to decline over time as the supply of green building features increases. The current evidence focuses on the value of green building certifications and says much less about the value of high underlying environmental performance (such as actual energy consumption).
Another notable finding is that evidence suggests that investors are defensively implementing sustainable improvements to their real estate to avoid discounts and protect value rather than aiming to achieve premiums through market‑leading stock.
A final note is that the heterogeneity of real estate makes general conclusions difficult to apply to individual circumstances. But this report highlights the value sustainable building feature potentially creates for our building stock.
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