Investors have pushed sustainability up the European property sector’s agenda over the past year, research from Cushman & Wakefield has revealed.
The research, based on interviews with managing directors and senior fund managers from 28 European real estate investors, builds on an initial report by Cushman & Wakefield a year ago.
The biggest shift in the past year has been the widespread adoption of fund level reporting, driven by an increase in sustainability focus among investors. The report says fund managers now appear better co-ordinated in their efforts to manage and report the sustainability impacts of their properties.
A commonly held belief among investors is that sustainability affects value, and that poor sustainability credentials pose a significant risk to the value of a property. Although it remains difficult to quantify the risk, investors and fund managers now routinely take account of this risk in acquisition and disposal decisions.
There also appears to be an increasing consensus that sustainability adds value by making properties that are quicker to let, cheaper to run and attract better quality tenants with stronger covenants. Cushman & Wakefield says that with greater pressure from funders, reports of escalating occupier demand in the prime office market, increasing regulatory requirements, and the expectation that energy costs will continue to rise in the future, it is evident that a critical mass has been reached and that industry is now at a tipping point.
Poor sustainability can lead to disposal
Interview responses found that:
- In 2012, 96 percent of respondents had implemented a sustainability policy, compared to 40 percent in 2011
- 90 percent of investors and fund managers have processes in place to evaluate new acquisitions in terms of sustainability
- Over three quarters consider poor sustainability credentials a factor in disposal
- 81 percent are seeing occupiers demanding more sustainable space.
Andries van der Walt, Cushman & Wakefield’s head of sustainability, Europe, Middle East and Africa region, said, “We believe the continued ability to attract investment and meet investor requirements for sustainability performance and reporting is the most significant reason for the momentum gained. Those European investors and fund managers who do not set minimum performance standards for investments need to start doing so to better mitigate against risk."
Van der Walt will be speaking at the 40 Percent Symposium, a one-day conference focusing on the impact of sustainability on commercial property value and investment, taking place in London next month. John Pike, founder of the 40 Percent Symposium said, “Top pension funds and leading commercial property organisations are looking hard at their ‘bricks and mortar’ investments.” He added, “Businesses operating in difficult market conditions will not want profit margins eroded by high operational costs. Sustainable buildings are a safer bet in terms of return on investment and this is the key issue for this market.”