Moves to set European-wide benchmarks for measuring the sustainability of buildings are about to enter a second phase, says Leo Weidenaar
Four of the industry's biggest real estate investment managers are approaching the end of the initial phase in establishing Europe's first common benchmark for measuring the sustainability of buildings across national borders, in preparation for the probable future introduction of ‘green leases' in the market.
"We were faced with so many sustainability standards at the local level, ranging from BREEAM in the UK to HQE in France, that it was very difficult to make meaningful cross-border comparisons of the assets in our pan-European portfolios," Leo Weindenaar, managing director of the European Office Fund at ING Real Estate Investment Management said in a recent interview. He added: "That is why these investment managers joined together in The Green Rating Initiative (GRI), in conjunction with the certification agency, Bureau Veritas, to establish a common benchmark,ING REIM, together with AEW Europe, AXA Real Estate Investment Managers, GE Capital Real Estate and Bureau Veritas launched GRI in late-2007.
"While we compete on all other levels in the market, in this area we are co-operating very successfully. The people in the steering group, which meets every three months, have a lot of knowledge and experience."
The GRI measures six objective and tangible indicators in a building: energy needs; carbon emissions; transport (mainly based on access to public transport); water consumption; wellbeing (based on the quality of a property's indoor environment); and waste.
The building's performance according to these criteria is then assessed at intrinsic, potential intrinsic, actual and potential actual levels to produce a final single overall score for the asset. Unlike most sustainability rankings, the GRI measures the performance of existing stock, which makes up 95% of supply, rather than just new developments.
There are currently around 50 Bureau Veritas GRI-qualified auditors in France, the Netherlands, Italy, Spain, the UK, Switzerland, Hungary and Poland that are in the pilot programme.
Weindenaar said that ING REIM had now completed GRI audits of all 80 assets in its European Office Fund. Other managers in the pioneer group have also completed sufficient audits to make them confident that the performance benchmark for offices is now robust enough for market use. New benchmarks for retail and logistics property will follow and the GRI is being opened up to other investment managers and listed real estate companies to participate in if they wish.
The key question for companies when investing in improving the sustainability of an asset is whether this actually pays off in better returns through higher rents or capital value premiums.
"The added value gained by investing in sustainability is, in the short term, not so clear, although most studies suggest that it improves IRRs [internal rates of return] over the long term. What is clear is that national governments, or the EU, are going to introduce more regulation for existing buildings at some point. When they require the industry to provide green leases, and there is a general acceptance of these by corporates and governmental institutions, this will lead to a sea change in the European real estate market," Weindenaar said.
The introduction of a legally enforceable green lease management framework in Australia, which requires a minimum Australian Building Greenhouse Rating (ABRG) of energy efficiency, has created a significant spread in capital value premiums of at least 5% for higher-rated buildings.
"Europe might be five years behind the Australians, but every portfolio manager should know what the sustainability characteristics of the assets in his or her portfolio are, because every major political party has this on their agenda and green leases might arrive across the market a lot quicker than we expect," Weidenaar added.
"Institutional investors are very interested in this topic and they want more transparency on sustainability. Now with the GRI I am able to give them that," he concluded.