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Low-carbon workplaces provide long-term value

There's no doubt that sustainable buildings - with energy-saving measures like thermal wall insulation, high-quality glazing and low-energy lighting - can save money and carbon in the long term, and increasing numbers of investors are also realising that so-called "green real estate" can provide strong returns on investment.

In November, investment firm Columbia Threadneedle announced that its Low-Carbon Workplace Fund had "punched the lights out of" its mainstream benchmark. In 2015, it outperformed by 6.6 per cent.

Commenting on the results, Columbia's head of property, Don Jordinson, said: "This is the final proof of the concept that you can have a solution for turning existing offices into low-carbon workplaces and make money at the same time."

In a report published on sustainable real estate in October, Doug Morrow, associate director of thematic research at analysis firm Sustainalytics, explained that a higher concentration of green properties is starting to outperform in the markets.

He added: "Mainstream developers are realising the benefits of green building, in terms of higher rental rates and sale prices."

It looks like a number of investment firms are starting to see that green investment is the way to go. Axa's real estate arm recently pledged that 75 per cent of its direct property investments will be in environmentally-certified assets, while Credit Suisse is planning to reach first close on its Europe Climate Value Property Fund - this seeks to maximise the energy efficiency of its real estate assets.

Felipe Gordillo, a senior analyst at BNP Paribas' Investment Partners explains that one reason for the success of these investments is that the sector is exposed to a lot of regulation. For example, in France, building owners are required to carry out energy-efficient upgrades if buildings fall below certain levels.

"There are regulatory powers directly impacting the value of these assets, so it is an advantage to be able to select the companies who are in the best position to handle those risks, for material reasons. As a result, mainstream investors are increasingly interested in these products," he says.

Although the numbers demonstrate clearly that green real estate is a winner, there are still barriers to growth - particularly the "split incentive". This is the idea that making a property more energy efficient is more beneficial to the tenant, rather than the owner. This is why many landlords often don't feel inclined to make sweeping investments themselves. However, these property owners are beginning to realise that there are more advantages than simply lower energy bills.

Benefits to owners include lower risk profiles, lower energy costs and higher occupancy rates.

Mr Marrow notes that investors are increasingly focussing on sustainability in general, so there is also a growing push for real estate companies and property owners to take greater steps to improving a building's green credentials. 

This is backed up by research from Global Real Estate Sustainabilty Benchmark, which suggests that more fixed-income investors are looking for sustainable real estate opportunities. With buildings accounting for around 40 per cent of global energy consumption and 30 per cent of global carbon dioxide emissions, most experts agree that any future pushes towards lowering emissions and increasing sustainability are going to have to focus on reducing buildings' energy consumption.


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