BUILT ENVIRONMENT
Commercial property values
THE PRICE IS
NOT RIGHT
The UK’s commercial property sector is struggling – and things could
GREEN
get worse. So when will sustainable buildings start being valued
BUILDINGS
SPECIAL
properly? As Kate McKinley reports, valuers, landlords and tenants
all need to embrace green credentials
F
or anyone working in the commercial bull market has meant that despite sustainabil- workplace and public buildings in the UK,
property sector, 2009 was never going to ity issues moving up the agenda, the imbalance which currently account for 25% of UK car-
be a great year, with investors and occu- between demand and supply has been the bon emissions. Yet, so far, these initiatives
piers returning to the property fundamentals major factor driving rental growth.” have had little effect or impact on valuation.
of cost, location and quality. Twelve months And it is in rental values where green initia- “Tenants have the greatest control of energy
ago the Royal Institute of Chartered Surveyors tives have really failed to make any serious use but not necessarily an incentive to change
(RICS) issued a sobering forecast predicting headway. Most institutional landlords, behaviour,” says Leaney
further falls in property returns and subdued typically pension, insurance and property “Service charge clauses in UK leases can be
interest from tenants and so it proved to be. companies, already try to influence rent a headache for the multi-let sector as they
There has been a modicum of relief in the through factors such as building specification don’t necessarily allow landlords or develop-
past few weeks, including headline deals such and finishes and the traditional property ers to benefit from energy savings they put in
as British Land’s sale of a 50% stake in its maxim of location, location, location, driven at their own cost.
Broadgate development to Blackstone. by tenant demand characteristics. “Energy saving measures therefore effec-
The Investment Property Databank (IDP), A recent occupier survey by Savills listed tively become a levy on landlords unless they
a well-respected barometer of UK commercial amount of rent payable, comfort of work area, can recover their costs through higher rents
property prices, also reported a 0.2% rise, but security, car parking and staff availability/ due to lower running costs.
this figure was unlikely to get hard-pressed retention issues as the main search criteria “But the fact is few tenants show much
commercial property agents popping the inclination to pay those at the moment in the
champagne. And, despite this glimmer of
light, many property experts are warning that
the commercial market could fall further.
So it’s a still pretty turbulent out there. Even
at the best of times property valuation has
‘
The requirement on all UK
current market.”
Valuers agree that a more likely scenario is
companies to report their
that poorer performing buildings will be
greenhouse gas emissions from discounted before we see a premium rent
April 2012 should start to focus
secured on a more energy efficient building.
been a complex process. But one issue that has It remains a considerable challenge to show
yet to really make an impact on how commer-
cial properties are valued is sustainability.
Nick Leaney, a chartered surveyor with
’
minds on workplace energy use prospective tenants what tangible costs
savings there are from a more energy efficient
when considering new premises. building and for investors to be able to realise
environmental consultancy Aardvark EM, Sustainability, while moving up the agenda, those savings in increasing value through
says the UK commercial property market has was still not a determining issue – this despite higher rents.
been slow to embrace sustainability issues. the fact that a recent RICS economic survey To see any real progress, tenants will have to
“There are many factors which influence found that 40% of respondents considered embrace green credentials as an integral part in
valuation – location, the age and condition of sustainability was a more important issue now their decision-making process – and in a mar-
the building and tenant covenant strength – than 12 months ago and 50% felt that it was ket where price is still the dominant factor,
and sustainability is still not regarded as a just as important. tenant persuasion is easier said than done.
material consideration, particularly when it If the Government is to make any progress Progressive landlords are trialling ‘green
comes to rental values,” he said. with its target of a 60% reduction in CO
2
and lease’ clauses across their portfolios to try to
“There have been green initiatives for greenhouse gas emissions by 2050, we have to influence better landlord/tenant cooperation
assessing building energy performance, but so take seriously how we design and occupy in reducing energy use and therefore carbon
far these have had only a marginal effect on buildings. There have been a number of green emissions and acceptance by tenants in
property values as the industry has found it initiatives in recent years – BREEAM, EPCs, agreeing these clauses is being helped by the
hard to quantify the benefit. We’ve seen this green leases, etc – all aimed at improving the forthcoming Carbon Reduction Commitment
very clearly in the past five years where the sustainability and energy performance of the legislation in April 2010.
30 November/December 2009 ❘ Sustainable Business
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