The latest update to the IPD Green Property Investment Index for NABERS rated buildings has confirmed outperformance of higher rated buildings compared to the rest of the market.
A version of the index that corrects the data for age of building still shows broadly the same results.
Managing director of IPD in Australia and New Zealand Anthony De Francesco said: “This is the first research to analyse the investment performance of recently refurbished office buildings rated by NABERS Energy.”
“Results show that recently refurbished office buildings with a high NABERS Energy rating outperform.”
“The strong growth in capital values for high rated buildings clearly shows increasing demand for these assets within the prime office segment.”
Results in this latest March Quarter very little form the results in the first of this age corrected index launched at Green Cities 2012 early in March.
He said the adjustment for age was to deal with the market expectation that a new building would outperform an older building irregardless of its star rating.
The results show that overall Australian CBD investment returns at 10.8 per cent for the quarter. NABERS ratings of 4-6 stars propels the total returns of assets in the index to 11.3 per cent.
Buildings with low rated NABERS values performed little better than the overall market results.
Melbourne’s lower margin for NABERS signifies cycle dynamics.
A big difference has emerged between high rated NABERS buildings in Melbourne and Sydney CBD, which Dr De Francesco explained by the different points of the cycle in which the two markets were positioned.
Melbourne’s high rated NABERS buildings achieved 12.7 per cent in overall performance while the same category of assets in Sydney achieved 10.6 per cent.
The margin of outperformance between the high rated buildings and others was also markedly different: in Melbourne the upside was 4 basis points above the average while in Sydney it was 8 bps.
Dr De Francesco said this was explained by the relative neutral impact of star ratings in a stable market (Melbourne); the bigger differences came through when the markets where in flux, either improving or deteriorating.
“When the markets are stablising you tend to get convergence between all the buildings. When the markets are downswing and in upswing, you see the biggest divergence, the biggest difference.
“In an unstable market all assets tend to converge, he said.”
What direction were markets head to next?
“We could see some softening. Our view is that there is a stablising in the cycle but there is further downside risk.”
When the index corrected for age of the buildings, including only buildings that were either new or had been refurbished in the past five years, the results also showed that a high NABERS rating produced higher overall performance.
Much of the superior performance came from capital values rather than income, or rents.
“The research suggests that to achieve return outperformance, any refurbished office building should be aiming for a high NABERS energy rating.”
“Owners who improve the sustainability attributes of their buildings are more likely to experience relatively stronger growth in capital values and will mitigate downside risk in asset values.”
