Friday, November 25, 2016

Why Investments in Sustainability Pay Off in the Long Run

... A unique study based on compelling data from investment advisory firm Bentall Kennedy reveals surprising reasons why developing sustainable properties is a good investment—including more long-term and happier tenants.
Compared to traditional buildings, rents for sustainable properties, also known as green buildings, were on average 3.7 percent higher, the study found. Rents can be even higher for specifically LEED-certified properties. Additionally, occupancy levels for green buildings were 4 percent higher, while tenant renewal probabilities for these buildings were roughly 6 percent higher.

“The research to date well supports a rental rate premium … in the 2 percent to 9 percent range. The offsetting benefits come in decreased expense variance (lower operating risk) and decreased human capital expenses associated with happier and healthier employees. There is also new evidence of increased retail sales in certified space,”...
BP Centre 240 4 Ave SW, Calgary, Alberta
by Alexandra Pacurar
Commercial Property Executive
July 20, 2016

The study, which was published in the ... Journal of Portfolio Management, was conducted by Dr. Nils Kok of Maastricht University in The Netherlands and Dr. Avis Devine of the University of Guelph in Canada. The research 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). Overall, 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.
"Previous studies have suggested similar correlations but none of these looked at in-depth, diverse metrics across a large portfolio for as long as 10 years," said Giselle Gagnon, Senior Vice President, Strategic Resources Group at Bentall Kennedy. "Investors want evidence to support the economic merits of investing in sustainable buildings, and this new academic research provides exactly that."

Deeper data sets show positive results for sustainable buildings

The study (available here) 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 ... include:
  • Net effective rents, including the cost of tenant incentives, average 3.7 percent 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 4% lower than in similar non-certified buildings.
  • Occupancy rates during the period were 18.7 percent higher in Canadian buildings having both LEED and BOMA BEST certification, and 9.5 percent higher in U.S. buildings with ENERGY STAR certification, than in buildings without certifications.
  • Tenant renewal rates were 5.6 percent higher in Canadian buildings with BOMA BESt Level 3 certification than in buildings with no BOMA BESt certification.
  • Tenant satisfaction scores were 7 percent higher in Canadian buildings with BOMA BESt level 3 and 4 certification than in non-certified buildings.
  • Energy consumption per square foot was 14 percent lower in U.S. LEED certified properties than in buildings without certification....
"This is the most in-depth and conclusive analysis conducted to date of the link between responsible property investment practice and financial returns," said Gary Whitelaw, Chief Executive Officer for the Bentall Kennedy Group. "By examining a large North American portfolio with consistent data across multiple market cycles, the results validate Bentall Kennedy's focus on energy and sustainability improvement in buildings not only as a socially responsible strategy, but also as a way to enhance property income for our clients."

Bentall Kennedy Group Press Release dated October 6, 2015

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