Commercial office buildings with ”green” energy ratings are consistently generating better returns than traditional offices, according to a new survey.
However, new ”green” buildings performed better than refurbished older buildings.
The IPD Green Property Index shows commercial property assets with Green Star or high NABERS energy ratings continue to outperform non-rated assets. NABERS - the National Australian Built Environment Rating System - is the environmental performance-based rating system for existing buildings.
IPD, a global information business operating in 25 countries, measures commercial real estate performance. IPD’s Australian green index, launched earlier this year, measures the effect of Green Star and NABERS on investment performance.
It is based on a quarterly analysis of income return and capital growth for rated office properties. The index assesses 500 assets worth some $38 billion - about 64 per cent of the office assets in the IPD property index
Over the two years to March, the index found that new offices with Green Star ratings outperformed non-rated buildings in each star rating, with the strongest returns in 4-star assets.
”The return spread between rated and non-rated buildings is about 340 basis points,” said IPD research manager Peter McGuinness. ”Capitalisation rates are lower for rated assets as opposed to non-rated assets.” Total returns for non-rated assets over the two-year period were 4 per cent, compared with 7.4 per cent for all stars. The best performer was 4-star (10.8 per cent), followed by 5&6 star (5.4 per cent) and 5-star (5 per cent).
Mr McGuinness said stability in capital values of Green Star-rated assets over the recent downturn was the main reason for the better returns. ”Lower capitalisation rates are consistent with capital value stability and indicate that Green Star-rated assets have less investment risk,” he said.
The IPD survey also found that existing prime office buildings with a NABERS energy rating outperformed their non-rated peers over the three years to March 2011 - but the difference was much less than Green Star.
Returns for non-rated prime offices were 1.6 per cent, compared with 2.1 per cent for all stars - a return spread of 50 basis points. The return on 0.5-3.5 NABERS stars was 2 per cent and 2.3 per cent for 4-5 stars.
Mr McGuinness said 4-4.5 stars outperformed 0.5-3.5 stars by 30 basis points. ”This suggests the optimal NABERS energy rating inflection point for return outperformance is 4 stars or above.” He said the findings of the March index were consistent with the initial results based on data to last December. The index includes details on income, capital and total return, capitalisation and discount rates.
