IPE - Investors looking to improve the sustainability rating of their properties must consider the unit's net asset value (NAV), or risk undermining its potential for value creation, according to a sustainability specialist from the €290bn APG Asset Management.
Addressing delegates at the IP Real Estate Investor Forum in London yesterday, Sander Paul van Tongeren (pictured), APG's senior sustainability specialist for global real estate, warned that the goal was not to have the most environmentally sustainable building in a portfolio, as such a measure would entail significant costs.
In a debate on sustainability chaired by Axa Real Estate's head of research and strategy Alan Patterson, representatives from Prologis and the UK's Universities Superannuation Scheme (USS) defended sustainable properties due to their reduced utilities bills and argued that investors looking to improve a holding's rating should target "low-hanging fruit", eyeing up to break even on most investments after a five-year period.
Patterson, often adopting a contrarian approach during the debate, repeatedly challenged the three panellists to outline the benefits of sustainability, with Van Tongeren arguing that a sustainable approach "should lead to an improved risk-adjusted return".
"A more sustainable portfolio should mitigate a lot of risks - not only the climate change risks, but also the risk of environmental legislation," he said.
He noted that any building meeting sustainability standards would likely be of higher quality, but also that there was increasing demand from tenants for units meeting certain qualifications.
The Dutchman added that it was important to balance sustainability needs with those of value creation, as the one otherwise risked destroying the other.
Simon Cox, UK sustainability officer and first vice-president of project management at Prologis, said it was about realising resources were "finite" and that an approach conscious of these limitations helped a company be viable in 20 years' time.
David Russell, co-head of responsible investment at USS, weighed in that the focus was often unnecessarily on a development's environmental, sustainable and governance (ESG) credentials during marketing, but that this was not always the correct path to pursue.
He said instead tenants should be informed of the "lay term benefits" of leasing such a building - with lower utility bills often cited as incentive.
However, van Tongeren later added that the ESG footprint was nonetheless important for some tenants who would see the reputational benefit in using such a property.
The panellists also spoke about some of the risks associated with ESG properties, highlighting the problems caused by solar panels.
Cox warned of the dangers of treating sustainable investment as separate from the remaining business, while van Tongeren warned investors not to consider technologies - such as solar panels - if they were still reliant on subsidies.
He cited the example of the Spanish government changing feed-in tariffs for solar power, a change that led to complaints from several Danish pension providers.