12 May 2011 – Green office buildings with high NABERS energy ratings are starting to hit their straps in the tenancy stakes, with lower vacancies and higher average rental income than their non-rated peers, the IPD Green Property Index shows.
The results, part of the new IPD Green Property Index launched at GreenCities 2011, proves what sustainable property investors and managers have believed for several years – going green is good for the bottom line.
The research looked at buildings rated between four and five stars NABERS Energy.
Research manager – IPD Australia and New Zealand Peter McGuinness said, “superior performance was found across a number of metrics ranging from space market fundamentals through to investment returns.”
Mr McGuinness said prime office buildings with high energy ratings showed vacancy rates that averaged 40 basis points below their non-rated peers and capitalisation rates also 40 per cent below their non-rated peers
They also showed a higher average rental income received compared with non-rated buildings.
“When comparing investment returns, assets with a NABERS energy rating of 4 to 5 stars deliver a significantly higher total return performance of 90 basis points over non-rated assets,” Mr McGuinness said.
Capitalisation rates were also better than those of their peers with high energy rated assets 40 basis points lower when compared to non-rated assets.
“Lower vacancy rates and higher rents clearly indicate strong tenant demand for prime office buildings with high energy ratings,” Mr McGuinness said.
“Higher tenant demand suggests reduced timeframes to lease vacant space in high energy rated assets. This is important for maintaining income streams and contributes to investment return outperformance.
“Lower capitalisation rates suggest a reduced level of risk associated with investment in high energy rated office buildings.”
However the buildings also showed higher gross operating expenses but these could be explained by higher investment in energy saving technology.
“The higher gross operating expenses for energy rated assets can be explained by the greater cost of running energy saving systems and technology, which outweighs savings made from lower energy consumption,” Mr McGuinness said.
“The findings indicate that investment return outperformance in high energy rated assets is primarily due to higher rents. The higher rental income outweighs increased operating expenses and translates into superior investment returns.”
Mr McGuinness said about 200 NABERS rated buildings formed the basis of the research.
The Fifth Estate – green buildings and sustainable property news
“We can’t wait for the future”