Investors keen to promote their image as socially responsible companies were handed a good reason this week to target the European real estate sector.
Investors keen to promote their image as socially responsible companies were handed a good reason this week to target the European real estate sector.
The annual ranking produced by the Global Real Estate Sustainability Benchmark (GRESB) has identified some new names that rank as ‘green stars’, including Stockholm-listed Steen & Strøm and French REIT Gecina. On the downside, Steen & Strøm’s French parent company Klépierre and its Dutch takeover target Corio did not rate a mention.
On the whole, though, European real estate owners emerged with an impressive score. According to the survey, more than half of the world’s green stars are now domiciled in Europe, with the number more than doubling from last year to 115. The US also saw its number increase by more than 100%, but still lags Europe with just 48 green performers overall. Asia is now rapidly catching up with 25 green stars this year while South America made its debut with a solitary green performer.
Australia, on the hand, has lost its competitive edge and increased its number by only one this year to 30. Initially in the vanguard when GRESB published its first survey back in 2009, Australia was bound to lose out in the longer term given the sheer size of the markets in the other global regions.
UK INVESTORS STEAL THE LIMELIGHT
For the fifth consecutive time, UK investors feature prominently in the top league of European players in both large and small cap categories and include all the usual suspects. Besides Legal & General and M&G, Hermes Real Estate, Standard Life and British Land all feature in the list along with Grainger Asset Management, Shaftesbury and Workspace. UBS Global Asset Management and CBRE Global Investors also rate a notable mention for three and two green stars respectively for a total of five of their specialist fund vehicles.
The growing number of green stars also reflects GRESB’s own rising star. When first launced in 2009, the GRESB benchmark included 198 property companies and funds and only 20 participants – or 10% - achieved a ranking in the highest – green star - category. Now over a third of the 637 benchmark participants are ranked in the highest category while the data they submitted covers 56,000 buildings with an aggregate value of $2.1 tln.
Not only has the coverage of sustainability reporting improved, but the sustainability performance of benchmark participants also shows significant progress. For example, 79% of property companies and funds now measure the energy consumption in their buildings. Collectively, between 2012 and 2013, the commercial real estate sector reduced its energy consumption by 0.8%, carbon emissions fell by 0.3%, and water consumption by 2.3%.
A study released this week by pan-European retail real estate specialist Redevco gives another reason for optimism on the sustainability front. The Amsterdam-based company revealed that its research had discovered a clear link between rent levels and the intensity of energy consumption in two major retail property asset classes. Derk Welling, Redevco’s head of corporate responsibility, is hopeful that the company's growing database and a change in its analytical approach has helped uncover a new benchmark or investment market outperformance indicator, that could also prove to be good for the environment.
'BILLIONS' HEAD TOWARDS EUROPEAN REAL ESTATE
Given the high proportion of UK insurers in the top GRESB league, their collective move to pump ‘billions’ into real estate must surely be seen as a welcome development - and one which was vindicated last Thursday by the ECB’s unexpected move to lower interest rates again. Earlier in the week, PropertyEU revealed that all the names mentioned above are changing tack as UK Treasury rates continue to fall. One insurer with billions to spend is M&G Real Estate, part of the investment arm of insurer Prudential. In the past six months alone, it has invested £1.7 bn (€2.14 bn) in real estate, according to Chris Perkins, head of UK investment management.
‘Last year, we invested £2.5 bn globally. This year we plan to exceed that. We’ve got billions to invest if we can find the right opportunities,’ he told PropertyEU.
M&G is by no means the only player digging deeper into its pockets for real estate. Also keen to boost its real estate holdings, particularly in the UK, is insurer Legal & General. So far this year, it has invested just over £1.75 bn in the UK real estate market. Aviva and Standard Life have also identified real estate as an area for growth.
While Europe dominates the global firmament of green stars, private equity fund managers active in this neck of the woods are not performing so well in a global league table of real estate specialists that have most consistently outperformed their peers. According to a report published this week by Preqin, the leading source of information for the alternative assets industry, only two European fund vehicles feature in its 2014 ranking. Funds managed by Helsinki-based CapMan Real Estate and Stockholm-based Sveafastigheter both rate a mention, but overall, North American dominate the league table with New York-based Blackstone Group and Dallas-based Lone Star Funds also making the list this year.
WEIGHTING TOWARDS US PLAYERS
The absence of European fund managers in the list is not purely down to performance, according to Andrew Moylan, head of real assets products at Preqin. The league table comprises only closed-end, private equity-style real estate funds which are naturally more prevalent in the US. In Europe, there are far more open-ended funds and other structured real estate vehicles. As such, this league table has a larger weighting towards US managers.’
Moylan attributed the outperformance of the Scandinavian funds to the fact that the region has been a
bastion of economic stability in the past few years. ‘The real estate markets in the region did not suffer to the same extent as much of the rest of Europe during the downturn. Given that the economic recovery in many European economies has lagged behind the US, the recovery in real estate has also lagged this. 'But,’ he added, ‘there has been a significant improvement in the performance of European funds in recent years.’
Another reason for global real estate investors to continue to orbit around Europe.
Judi Seebus
Editor in chief
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