Climate Change - Part 1: Can green buildings make you money?

Posted Thursday, December 19, 2019


Climate

Help! My estate is energy inefficient, get me out of here!

The first of our Climate Change series - this blog is here to squash the misconception that going green costs more than it saves. Long-term, green properties can provide managers with a more substantial and reliable profit. 

Property managers, address your environmental angst.

As a property manager, whether you’re private or commercial, the buildings that you manage are emitting greenhouse gases and guzzling energy - costing you money. We want to advise you on how to change this for the better (and tell you why it’s going to boost your revenue massively!!).

If you’ve read other blogs in the series, you’ll know that the property sector contributes hugely to climate-change via intensive use of freshwater, irreplaceable natural resources, and energy. We want to address each subsector of the industry and give you the motivation and tools to start improving YOUR business’ environmental rating. 

It can feel suffocating to work in an industry that is scrutinised for its emissions, and lack of sustainable practices, on a daily basis. If this applies to you, i.e. you manage housing estates and the grounds surrounding them, you’ll want to read on. This should enlighten you about the benefits of green buildings, and why managing them can improve the satisfaction of you and your employees. 

It’s a green world

Creating green buildings is a worldwide movement - countries such as South Africa, the US, and India are all on board (whether that be a metaphorical hand, foot or half on the ‘green’ train). 

  • Australian builds that are awarded the Green Star certification (Australian Green Star), produce ~62% less greenhouse gas emissions than average buildings and use 51% less potable water. 
  • Indian green buildings save 40-50% energy every year when built to the Indian Green Building Council certification standard (Indian Green Standard). 
  • US buildings achieving the Leadership in Energy and Environmental Design (LEED) certification, set out by the US Green Building Council, consume 25% less energy and 11% less water than regular buildings (US LEED Certification).


Saving on consumption not only reduces the running costs of your properties, but tenants are more incentivised to renew their lease if the cost of their utility bills is less. 

The global transition to lower-carbon economies puts assets with top energy efficiency ratings (A or B) in prime position. Asset values and capital returns are automatically higher on these types of properties, whereas poorly rated assets (E, F or G) will experience devaluation. The UK’s recent prioritisation of net-zero carbon targets means that aligning property management values with green ones will keep your business in-check with up-to-date UK Policy. 

Happier staff

Climate change is a societal issue, affecting the demands of the workforce on employers. Thanks to increased awareness of the crisis on our hands, people want to work for companies with green policies. So – property owners, landlords and other private owners of commercial space - it is in your interest to achieve better environmental standards. 

Increased worker productivity is one of the top two reasons for green practices, say 42% of European respondents to the World Green Building Council’s 2018 report. 50% of these came from the UK, showing that people truly believe that working for a green business will boost activity and efficiency.


Rising revenue

Inefficient assets (as denoted by Energy Performance Certification (EPC) E, F or G)can be expected to lose value, due to a surge in houses with top EPCs (A and B). The effect of transitioning to a lower-carbon economy on asset values and returns will be improved returns on assets with maximum efficiency. Put simply, the greener your estate, the greater its value.

Boost investment

Investors in the property business have an interest in the environmental performance of real estate. A growing body of research shows that new/existing buildings with the potential to ‘be green’ also have the potential to massively benefit developers, investors, occupiers, and other stakeholders. 

Green buildings deliver greater returns for a lower risk via cost savings, image improvement, better market signals, increased equity and reduced pressure from regulations. 

They often incur a premium rental/capital value - strong environmental efficiency certifications come hand-in-hand with capital value premia. Residential prices rise with improved Environmental Performance Certifications (EPCs), and tenants are willing to pay more for a property that will cost them less energy to run. The World Green Building Council (2018) reported that European respondents' top three reasons to go green were improving occupant health and wellbeing, encouraging sustainable business practices and increased worker productivity. 


In summary:

  • Tenants will pay higher rent if the cost of running their property is lower
  • Branding and marketing benefits arise from investing in green buildings
  • Eco-friendly companies attract more talented workers
  • Staff are more satisfied and less likely to leave environmentally friendly workplaces
  • Demand for less sustainable property is reduced by regulations and policies introduced by corporate occupiers 


Be the one to make a difference


High energy-consumption buildings - residential public and commercial - present the biggest opportunity to save energy. About 1/3rd of global energy is consumed in these spaces, in the form of heating, cooling, ventilating, cooking, lighting, refrigerating and mechanical devices. 

Commercial green builds have risen from 2 - 48% over the last 15 years and are expected to rise to 55% by 2020 with new regulation enforcements on construction. This doesn’t only apply to buildings that were ‘born’ green. Retrofitting with smart technology has saved on average c. 44 Mt carbon dioxide equivalent. It will save 13% of total carbon emissions, will cover 46% commercial buildings with LED lights by 2020 and will be an integral component of 25% of building management systems for energy efficiency. 


Secure the future of your business

Firms securing sustainable practices benefit from ‘first mover’ advantages, and technological and behavioural advancement. As well as this you can expect:

  • Access to green loans at preferential rates
  • Access to green fund equity-capital and ethical investment funds
  • Reduced risk of community and political opposition to projects – limiting potential delays and additional costs
  • Attraction and retention of talented staff who prefer environmentally sustainable organisations

Drivers of green property management

  • Commercial factors - people want to live in greener homes. Green building investment has been heavily influenced by lower operating costs and branding.
  • Regulations - the World Economic Forum (WEF) found strong correlations between the number of companies affected by regulations, and the % green building per company. So, it seems, if you want to be onside with rules and regs, green is the way to go. Not only this - properties that are energy efficient and meet LEED* standards (aforementioned) are more likely to sell at a higher value. 71% projects valued at $50 million and above by WEF had LEED referenced in their project specification.
  • Improved reporting - the Global Real Estate Sustainability Benchmark (GRESB) analysed environmental performance (among other factors) in 707 property companies and real estate funds and revealed that:
    • 288/707 have long-term carbon emission reduction targets
    • Average target is a 21% decrease over 7 years
    • 37 have targets of 50%+ over 13 years
    • 247 have short-term targets (1 year) of ~7%
    • 28% of the 707 did not give data on the environmental performance of their real estate


*LEED regulations = Leadership in Energy and Environmental Design standards. Devised in 1994 by US Green Building Council to encourage sustainable practices design and development of tools and criteria for performance measurement (more about LEED standards here)

Figure 1, below, was taken from the World Green Building Council (2018) and illustrates country-specific triggers to becoming more green in 2018. Globally, Client Demand and Regulations dominate at 34% and 33%. The UK’s strongest drivers appear to follow suit, with Client Demand at 60% and Regulations 48%. 

Do these factors resonate with you, as a property manager?

Figure 1. Driving forces to Green Building practices across several countries in Europe - UK, Spain, Poland, Norway, Ireland and Germany. 

Next, in part 2, we discuss the performance of the UK’s property sector in environmental sustainability practices. 

Got an opinion on this? Tweet us @fexco_ps



Sources

https://www.worldgbc.org/benefits-green-buildings

https://new.gbca.org.au/green-star/certification-process/

https://www.regupol.us/sustainability/leed-certifications/

https://landsec.com/sustainability/our-sustainability-strategy

http://www3.weforum.org/docs/GAC16/CRE_Sustainability.pdf

https://www.britannica.com/technology/LEED-standards

https://new.gbca.org.au/green-star/certification-process/

https://igbc.in/igbc/

https://www.regupol.us/sustainability/leed-certifications/

https://www.esmap.org/sites/esmap.org/files/DocumentLibrary/ESMAP_Energy_Efficient_MayoralNote_2014.pdf

https://www.worldgbc.org/sites/default/files/World%20Green%20Building%20Trends%202018%20SMR%20FINAL%2010-11.pdf

 

 


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