7 November 2012 — New Zealand’s new green property index has proved that over the ditch too, green is good for the bottom line.
The inaugural Property Council New Zealand/IPD Green Property Investment Index released on Wednesday shows Green Star rated office buildings returned an impressive 8.9 per cent compared to non-rated buildings at 6.4 per cent in the year to September 2012, according to the new Property Council New Zealand/IPD Green Property Investment Index.
The Index provides a measure of investment performance across office buildings which have been awarded a Green Star rating. Data has been taken from 12 participants, with property assets worth a total of about NZ$1.3 billion.
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IPD Australia and New Zealand research manager Peter McGuinness said with lower capitalisation rates, capital growth stability and clear outperformance in investment returns, Green Star rated buildings made a strong investment case.
The inaugural New Zealand Green Property Index found the return outperformance for Green Star-rated office buildings was driven by a positive capital growth component of 1.7 per cent. Conversely, non-rated office buildings experienced a negative 1.4 per cent capital decline.
The Index also found, on average, cap rates for Green Star rated buildings were lower by 30 basis points, constent with capital growth outperformance in Green Star rated assets.
Mr McGuinness said strong capital value growth was driving the outperformance of Green Star rated office buildings.
“This is consistent with lower capitalisation rates, which suggest Green Star rated buildings have less investment risk,” he said.
“With lower cap rates, capital growth stability and clear outperformance in investment returns, Green Star rated buildings make a strong investment case.
“Green Star-rated buildings showed stronger net income a square metre, which indicatedstronger demand for green rated assets. Rated buildings also show lower capex [capital expenditure], which contributes to a higher capital growth component,” Mr McGuinness said.
Higher net income indicated strong tenant demand for green stock and this suggested these buildings “have higher rents, lower vacancy and reduced timeframes to lease space”, he said.
“These features are important for maintaining income streams and contribute to investment return outperformance. As a result, owners who improve the sustainability attributes of their buildings are more likely to experience stronger investment returns and lower investment risk.”