Recent research from global commercial property services firm, Jones Lang LaSalle, shows investor appetite for sustainable investments has not been dampened by the global economic downturn and in fact has returned as a stronger investment driver than ever before.
Jones Lang LaSalle’s Survey of Investor Sentiment shows 31 per cent of Australian investors are willing to pay more for more for a building with sustainability potential, up from 18 per cent in 2008.
Anita Mitchell, Head of Energy & Sustainability Services Australasia, said the survey results reflected the fact that market expectations continued to drive sustainability despite the economic downturn.
“It is reassuring to see that, despite the difficult operating environment over the past 18 months, sustainability has remained on the business agenda and has now returned to its highest ever level of investor interest,” Ms Mitchell said.
For the first time in the Jones Lang LaSalle survey’s four-year history, 100 per cent of investors surveyed agreed sustainability impacts on their investment decisions.
Ms Mitchell said, “In previous studies, between 4 and 12 per cent of investors had said sustainability did not impact their investment decisions at all, however this attitude appears to have changed. Overall, sustainability of buildings remains predominantly a ‘tie-breaker’ factor in investment decisions, with 44 per cent of investors saying sustainability factors would sway their choice between two otherwise equal alternatives,” she said.
The survey showed investors still predominantly view sustainability as a mid-term issue, with 50 per cent of investors indicating it will become critical over the next one to five years. This represents an increase from 45 per cent in 2008.
More investors are also viewing sustainability as an issue that is critical now or within the next twelve months (38 per cent in 2009, up from 36 per cent in 2008), and less view it as a longer-term issue that can be addressed in five to ten years (13 per cent in 2009, fewer than the 18 per cent in 2008).
According to the Chief Executive of the Green Building Council of Australia, Romilly Madew, green building is no longer the exception, but the rule.
“More than 220 buildings around Australia have been certified under the Green Star environmental rating system for buildings. The equivalent to 3.5 million square metres of building space has a Green Star rating, with another 470 projects – 6.5 million square metres - registered to achieve Green Star certification. In total, around 10 million square metres of building space has been impacted by Green Star. To put that in perspective, that’s around 181 times larger than Sydney Harbour. Clearly, sustainability is here to stay.
“We’ve seen a seismic shift in the market towards Green Star in the last seven years, and green building practices are rapidly becoming mainstream as investors recognise that a focus on sustainability can help to ‘future proof’ their assets,” Ms Madew said.
Market drivers for sustainability strongest ever, led by tenant demand
The survey found market drivers for sustainability had significantly strengthened across the board.
Of the seven nominated factors driving sustainability, respondents rated six more highly than in past surveys.
The survey showed tenant expectation lead the way, having been rated as an important factor by 88 per cent of investors surveyed, up from 74 per cent in 2008.
“Tenant demand and expectation continues to be the leading market driver for investors considering sustainable property investments. In a market where there is a current tenant bias, this trend is likely to continue until the market moves more into balance, which is expected throughout 2010 and into 2011,” Ms Mitchell said.
Reductions in outgoings now much more important than before
Achieving reductions in outgoings was rated equally important as achieving NABERS Energy and Green Star ratings. Both were rated as important by 63% of respondents. Interestingly, achieving reductions in outgoings was more important (58%) than the year before (40%).
“Given the heightened focus on reducing outgoing expenses as a result of the economic downturn, it is unsurprising investors rated cost reduction factors much more highly than before and, currently, more highly than other investment return factors such as increased rentals (at 56%) or building valuations (at 50%).
“The fact that all these factors increased across the board in terms of importance does indicate that investors are starting to be more forward looking but that cost savings will remain on the agenda due to the short term direct benefits they provide,” Ms Mitchell said.
Legislative changes, data measurement and reporting more important
Legislative and industry changes significantly increased in importance with 38% of respondents (compared to 29% in 2008) nominating it as important. In fact, this factor has more than doubled in importance since the first survey in 2006, when it was ranked as important by only 16% of respondents.
“This result likely reflects the increased political, media and public focus on potential climate change legislation and the proposed introduction of Mandatory Disclosure of Commercial Office Building Energy Efficiency later in 2010,” she said.
In addition to these market drivers, investors rated data measurement and reporting as a continued propriety, with 31% of respondents saying it was important. This is another increase on top of the huge increase recorded by investors last year, where it had jumped from 14% in 2007 to 29% in 2008. The percentage figure for 2009 is nearly four times higher than the 8% recorded in the 2006 survey.
“The increase in importance of data measurement and reporting is no doubt also being driven by legislative changes, including the Energy Efficiency Opportunities Act and National Greenhouse and Energy Reporting Act.
“The results of the survey clearly show market factors such as these maintained the value of sustainability in commercial property, despite the economic downturn. The latest figures also suggest that the business case for sustainability will continue to increase amid more positive economic conditions,” Ms Mitchell said.
