8
The impact of sustainability on value
Green premium or brown discount?
Despite it being argued that sustainable buildings are associated with higher rents, lower tenant incentives and re-leasing costs over time, there is no getting away from the fact that some within the industry remain sceptical. Two-thirds of respondents to our investor survey said that they would increase their allocations towards more sustainable real estate either across their whole portfolio or in certain sectors over the next 12 months, but a third stated that they would not change their allocations.
In part this is due to the difficulty in showing hard evidence of increased value associated with sustainable buildings. At present, environmental rating schemes and other certification schemes are entered into voluntarily but these schemes also serve as a good benchmark to understand whether they have any impact on office performance.
To assist the conversation, JLL has looked at leasing activity of new and refurbished Grade A space since 2008 to start to build up a picture of how buildings with either an EPC certificate or BREEAM rating have performed over time.2
EPC certificates were introduced back in 2007 and, from April 2018, minimum energy efficiency standards were introduced. In effect, it is unlawful for a landlord to let or renew a commercial property with an F or G EPC rating, unless there is a valid exemption. From 2023, all existing leased buildings must also comply with this, so the onus is on landlords to start to improve their existing properties over the next 24 months.
BREEAM is a world-renowned sustainability rating scheme, to assist the real
estate industry to deliver sustainable buildings and was introduced into the UK back in 1990. Buildings are essentially rated Outstanding, Excellent, Very Good, Good, Pass or Passable. It is not mandatory but increasing number of planning authorities are now demanding a BREEAM (or equivalent) rating as a requirement for development, while landlords are using certification as a means to illustrate the “green credentials” of their buildings.
6.5% (Number of buildings)
of central London stock have a BREEAM rating
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