US real estate, among the most complex in the world, even so, green is paying off

[UPDATE 14 November 2009] : 5 November 2009 – Green buildings have many benefits, everyone agrees. But now investors have proof that green buildings also bring in bigger dollars – a premium of up to five per cent on comparable non-green buildings in fact – thanks to new research in the United States commissioned by the Royal Institution of Chartered Surveyors and presented last week in Sydney at the joint Australian Property Institute-Australian Direct Property Investment Association conference, Profitable Sustainability in Property. [Full report soon.]

In an ironic twist, the research also found that after governments the next biggest occupiers of green buildings were oil companies.

According to RICS the research, Doing Well By Doing Good, by Nils Kok and Piet Eichholtz of Maastricht University and John Quigley of the University of California, Berkley, proves what many people have believed anecdotally – that green buildings are worth investing in.

RICS chief economist Simon Rubinsohn said: “Previously with only anecdotal evidence available on which to base decisions surrounding development of energy efficient buildings, it is understandable that the uptake of some measures has been frustratingly slow.

“With more comprehensive evidence based research, such as this paper, the economic argument for having an energy efficient building will be strong.

“By proving that green buildings are economically beneficial due to the savings they can make and the higher rental yields they attract, non-green buildings will eventually become an outdated model.”

For investors there is a growing international case for green buildings as the premiums rise in direct correlation with the increase of sustainable buildings, Mr Rubinsohn said.

RICS said its recently released its Valuation Information Paper on sustainability  was part of its wider commitment to pursuing the objectives of the Vancouver Valuation Accord, signed in 2007.

Chairman Valuation Sustainability Working Group Philip Parnell said: “The valuer has a clear responsibility to ensure that a valuation reflects all material factors that may influence value. Sustainability is one of the factors that is rapidly gaining in importance. Markets appear to be moving towards a requirement for greater recognition of sustainability issues, with the evidence suggesting that buildings that fall short of the prevailing market expectations will be increasingly at risk of accelerated obsolescence.”

According to managing director RICS Oceania Kaye Herald,  undertaking the work in the US was useful because that country has “the most complex real estate markets in the world, so by understanding how Green can work there we get a better understanding of how it can affect our commercial stock.”

“Essentially what we need to look at is the future of the commercial office market and how the value of buildings will play into what tenants, owners and investors want

“We need to look at what incentives there are for existing stock.

“For many years we have been looking at the existing building stock in our cities, because we cannot ignore the very fact that the majority of our commercial stock was built before sustainability was a topic.

“Government plays a vital role in the sort of incentives that business need to advance sustainability and when the Federal government releases its Mandatory disclosure legislation in the latter part of the month we will all have a clearer picture of how the sector can move forward.”

tperinotto@thefifthestate.com.au