Progress in advancing sustainable real estate could be enhanced if the industry were to speak with one, clear, united voice, says Carl Bennett
Not long ago, UK property market investors railed against the government raising the cost of stamp duty land tax (SDLT). The way that the market responded was that each of the industry bodies, such as the Royal Institution of Chartered Surveyors, British Council of Shopping Centres, British Property Federation, British Council of Offices, etc, acted independently.
The result was that government still raised the highest level of SDLT to today's level of 4% compared with a cost of buying and selling shares of 0.5%!
Did this occur because it was appropriate and generally accepted by the industry or was it because the property market didn't challenge these increases with a single, unified voice?
Liz Peace, chief executive of the BPF, in a recent IPE Real Estate article entitled ‘United we stand…?' (July/August 2008), raised the issue of this fragmented approach to numerous issues in the market and highlighted the positive work that the UK's Property Industry Alliance (PIA) is doing to aid in this unification process. The concept: act collectively to ensure that the powers that be hear one consistent view, enabling the industry to have a greater influence on the process.
A similar situation is arising with the multitude of sustainability or ‘green' bodies and groups, where each has a real interest in how the agenda is advanced. Of particular interest to Hermes and to me personally is the issue of benchmarking.
An example of the creation of effective market benchmarks can be found at IPD, which has for years been producing financial return performance benchmarks in the UK and has rolled out this facility in many other countries. It is successful because is the only game in town and has the knowledge, insight and track record to make this a valuable service for investors . So what has this to do with the issue of benchmarking sustainability?
With the rise in sustainability awareness in the property sector we should all welcome the development of sustainability benchmarks. They are much-needed tools providing transparency and a way to assess both the impact on financial performance and improvement in buildings' operational performance. Unfortunately what I see is a growing sense of confusion resulting from the great variety of benchmarks being developed, the various methodologies used for data collection and the unclear aim of the outputs.
The current environment with its numerous bodies, working groups, forums and ‘interested parties' all staking a claim to their approach to benchmarking is strongly reminiscent of the approach adopted by many bodies arguing against SDLT rises.
In its simplest form, the UK's Chartered Institution of Building Services Engineers has been developing for the Department of Communities and Local Government fixed benchmarks by which buildings can be compared against the rating system of the display energy certificates (DECs).
Supporting DECs and acknowledging the tenant-landlord and multi-tenanted structure of the UK property sector, the British Property Federation, sponsored by the Carbon Trust, has led the development of the LES-TER methodology aiming to facilitate the differentiation and integration of tenants' and landlords' energy uses, ultimately designed to provide a tool such that LES (Landlord's Energy Statement) + TER (Tenant's Energy Review) = DEC. There is a risk, though, that this initiative, rather than supporting the methodologies used for DEC calculation, could compete with them and create yet more uncertainty.
From a more dynamic perspective and with a view to improving the operational performance of buildings/portfolios we have seen the emergence of operational performance benchmarks. The sustainability consultant Upstream's Building Performance Benchmark for shopping centres and offices with a strong focus on owners covers about 250 buildings. And from the occupier perspective, IPD has been working with the Office of Government Commerce (OGC) on benchmarking the Government Estate - about 150 buildings. At the European level, another new ‘global green rating system' has been announced by Bureau Veritas.
Finally, asset-specific sustainability benchmarks focused on financial performance are now being developed. These include Upstream's ‘The Third Dimension' and the IPF-led Sustainable Property Investment Index - IPD/IPF 4 Good. I hope that these tools will at least allow investors to compare total returns of our investments with our peers from a sustainability perspective.
However, while some consultation has taken place between the competing initiatives there is a risk of a market divide reducing the chances of effective comparison of sustainability and financial performance across the whole property sector. Hermes' involvement in both initiatives has highlighted the need for more transparency and compatibility among the data inputs required by each service.
The Better Buildings Partnership (BBP), a group of the UK's large property owners, with the support of the UK Green Building Council, is assessing how to ensure that, as a minimum, the data collection methodologies behind various benchmarks are compatible.
Benchmarks should be welcomed. However, one consistent approach allowing a single comparison across the whole of the property sector would be much more efficient.
Could the industry, perhaps through PIA, secure compatibility between the initiatives by adopting a common data collection approach/methodology which all would agree should be aligned with the principles of the Global Reporting Initiative? The growing benchmarking confusion is clearly not consistent with the PIA's initiative to unite all groups.
Two outcomes are possible: either no consensus approach to benchmarking - all bodies do their own thing and investors get increasingly confused, disenfranchised or just select who they want to run with, with little or no comparables to be drawn against their peers or the market; or, in keeping with the PIA approach in other areas, certain bodies are responsible for certain aspects of benchmarking, although this may not be palatable for some interested parties.
Will the second option become reality in the short term? ‘No' is the realistic answer after observing how the sustainability space has developed, and how the vast array of different participants, all with their own personal agendas and views on how the future looks, has expanded.
As an investor, ultimately our greatest concern is to assess the impact on financial performance and understand what the drivers are. A unified approach to methodology will enable the industry to be better placed to engage with government on future sustainability-related initiatives.
Carl Bennett is head of reasearch and strategy at Hermes Real Estate
