The Green in Green
The Global Real Estate Sustainability Benchmark (GRESB), an industry-driven organization that measures the sustainability performance of real estate portfolios, released its 2015 data and industry report, based on an assessment of 707 property companies and private equity real estate funds, representing 61,000 assets and US$2.3 trillion in asset value. Among its findings, the report documented a three per cent reduction in greenhouse emissions in 2014, a 50 per cent increase in on-site renewable energy generation, and a 19 per cent improvement in overall ESG performance. The GRESB believes that the global property industry is at the heart of critical global issues that include resource constraints, climate change, and urbanization, but that the industry is also positioned to design and operate buildings more sustainably such that they can provide solutions to these challenging issues, while also creating value for real estate investors and shareholders.
The 2015 Report provides new data showing that the global real estate sector is increasingly integrating environmental, social and governance considerations into corporate policies and business strategy. Critically, the data also shows that policy and strategy are backed by actual implementation of energy and water efficiency programs, and demonstrable improvements in sustainability performance.
- More property companies and funds report on sustainability: 707 companies and funds, representing US$2.3 trillion and 61,000 assets;
- Better environmental performance: on average, the sector achieved a 3.04 per cent reduction in GHG emissions, 2.87 per cent reduction in energy consumption, and a 1.65 per cent reduction in water use;
- Growth in renewables: on-site renewable energy generation of 445GWh, an increase from 296GWh in 2014
North American REITs and private equity funds slightly trailed the global market, with an average sustainability score of 44 compared to the global GRESB average of 46. With North America facing a long-term challenge in preparing for changing climate conditions, there is an acute need to understand and manage climate-related risks to individual properties and entire portfolios. The 2015 GRESB results indicate that the North American companies and funds are taking action to address climate risk and resilience. 88 per cent of participants reported having sustainability policies and a growing fraction of these policies include specific provisions addressing climate risk (36 per cent) and resilience (26 per cent). Severe and prolonged drought across western North America has also brought attention to the importance of water conservation and sustainable water supply management. 86 per cent of North American property companies and funds implemented water efficiency improvements for standing investments within the last four years. “The 2015 GRESB Report and data show that the global property industry is taking sustainability issues seriously, making them a core part of business strategies,” says Chris Pyke, COO of GRESB. “In North America, this is reflected in portfolio-wide efforts to save energy, conserve water, and enhance resilience. The recent gains across the commercial real estate sector are impressive, yet in absolute terms, the sector’s environmental impact remains significant and more work remains to be done.”
Green office buildings deliver higher income and value
One underlying message of the GRESB Report is not only that the global property industry is taking note of sustainability issues, but that improved property performance is strongly correlated to green building certification, a fact vividly illustrated in a new study of Bentall Kennedy’s North American office portfolio, conducted by Dr. Nils Kok of Maastricht University in The Netherlands (who is also a board member of GRESB) and Dr. Avis Devine of the University of Guelph in Ontario.
The research, which was published in the September 2015 issue of the Journal of Portfolio Management, analyzes 10 years of financial performance data across a Bentall Kennedy-managed office portfolio totaling 58 million square feet, (34 million square feet in the U.S., 24 million square feet in Canada). By examining a large North American portfolio with consistent data across multiple market cycles, the results provide compelling evidence that buildings with sustainable certification outperform similar non-green buildings in terms of rental rates, occupancy levels, tenant satisfaction scores, and the probability of lease renewals.
The study of nearly 300 office properties across North America included lease-level data such as rents, rent concessions and lease renewal rates, as well as building-level information such as occupancy rates, tenant satisfaction scores, energy and water consumption, and green building certifications.
Highlights of the findings include:
- Net effective rents, including the cost of tenant incentives, average 3.7 per cent higher in LEED-certified properties in the U.S. than in similar non-certified buildings;
- Rent concessions, for LEED and BOMA BEST buildings in Canada are on average four per cent lower than in similar non-certified buildings;
- Occupancy rates during the period were 18.7 per cent higher in Canadian buildings having both LEED and BOMA BEST certification, and 9.5 per cent higher in U.S. buildings with ENERGY STAR certification, than in buildings without certifications;
- Tenant renewal rates were 5.6 per cent higher in Canadian buildings with BOMA BEST Level 3 certification than in buildings with no BOMA BEST certification;
- Tenant satisfaction scores were 7 per cent higher in Canadian buildings with BOMA BEST level 3 and 4 certification than in non-certified buildings;
- Energy consumption per square foot was 14 per cent lower in U.S. LEED certified properties than in buildings without certification.