IPE RE Awards: Sustainability data urgently needed to make progress

More information on energy efficiency and the environmental impact of real estate investments is urgently needed if the industry is to move forward in reducing carbon emissions, according to a panel of investors at the IPE Real Estate Conference & Awards.

Speaking at the Milan event, David Ironside, chief investment officer for continental Europe at LaSalle Investment Management, emphasised how important it was to gather such data to create stronger environmental performance in the future.

“We have been signing a lot of green leases with tenants where we’ve been requesting that they give us their energy details,” he said.

Ironside said regulation played a key part in allowing energy data on real estate to be collected. “What we’ve seen is that legislation has been the lever that has given us more data,” he said.

“In France, where the tenants are obliged to give the data, we do get a lot more data and in Germany the response rate to green leases has been very poor because there’s no obligation to do that.”

During a panel debate, Abigail Dean, head of sustainability at TH Real Estate, said that, as a global investor, identifying which buildings were actually sustainable was one of the most significant challenges.

“We have the likes of BREEAM and LEED specification, but ultimately they don’t actually tell you how operationally efficient a building is,” she said.

Without that knowledge, it is very difficult for value to be assessed, she said.

If Australia’s system of ratings based specifically on energy-efficiency performance were to be introduced in Europe, she said this would go a long way to establishing a clear link between rental value and operational energy performance.

Asked if she thought it would be worthwhile for the industry to push for the creation of this type of measure, Dean said: “Absolutely, and that would be my call to arms.”

Martin Brühl, CIO at Union Investment Real Estate, favoured bottom-up self-regulation as opposed to top-down imposed regulation.

“From the experience I think we all share from the GFC, regulators sometimes get involved and overdo it, and they swing the pendulum far too far in the opposite direction,” he said.

Brühl said his firm had analysed its €35bn real estate portfolio with regard to stranding risk — unforeseeable devaluation of assets which he said could happen to some assets because of environmental regulation.

“We have built this into the investment strategy when it comes to buying new assets into the portfolio but also when it came to the sales programme,” he said.

Mathieu Elshout, senior director, private real estate at PGGM, said the Dutch pension fund manager was in the process of trying to understand the environmental impact of all its assets, including its property investments, and more data was needed.

“What we also are working on is mapping our full real estate portfolio which is more or less €20bn global, so we need data from every asset we have exposure to,” he said.

Brühl said the valuation profession was working on integrating climate-related risks into the valuation process, but that such efforts had not yet reached their goal.

“There’s progress, but its sluggish and its sometimes frustrating as an end user.” he said.

Roxana Isaiu, director ESG and real estate at GRESB, said: “I think the crux of that issue is the need for more data and better data in general.”

Ironside said that LaSalle estimates that buildings with strong “green credentials” could add a premium of up to 12-14% to their value, Ironside said.

“We’ve certainly seen that they lease well, so improved occupancy levels are something that we do believe in,” he said.

In addition, assets with good environmental qualities were more liquid, he told the conference in an address. “Generally, they are better buildings, so there should be less obsolence because they are planned for the future,” Ironside said.

Breaking down the added value that green buildings could potentially have compared to less environmentally friendly real estate assets, Ironside said improved occupancy levels could result in 10bps of yield compression, and greater liquidity could lead to a similar result.

Reduction in obsolesce could give 15bps of yield compression, increased leveraging opportunities could give 20bps and better quality tenants resulting in 10bps of yield compression, he said.

Related images

  • David Ironside of LaSalle, speaking at the IPE Real Estate conference in Milan

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