Environmental factors will contribute significantly to the financial performance of real estate portfolios over the coming years, and investors will need to put increasing focus on green buildings if they are to maximise returns, according to research from LaSalle Investment Management.
The report finds that buildings with green attributes warrant a higher price in recognition of their lower risk, and that investors could therefore consider accepting returns that are 65 basis points lower than for non-green buildings.
'The rising demand for the sustainability and resilience features of a building is due to both regulatory and market forces. Such factors should be an important consideration in the investment analysis of portfolios and assets,' commented Jacques Gordon, LaSalle IM’s global head of research & strategy.
The environmental attributes include energy conservation, carbon footprint reduction, water and waste recycling, and green building ratings that encourage sustainable building design and operations.
'These factors have risen in significance in recent years to the point that they deserve investors' full attention alongside other secular trends in real estate,' said Mahdi Mokrane, LaSalle’s European head of research & strategy.
Time-critical factors
The report also finds that there could be an early-mover advantage for those firms which are able to seize the opportunities.
'By raising environmental considerations as worthy of close attention, we are suggesting that they will, in time, have the power to drive long-term occupier and investor demand on a vast scale equivalent to the three other secular drivers of real estate demand previously identified by LaSalle; Demographics, Technology and Urbanisation (DTU).'
The research paper, entitled 'Environmental Factors & Real Estate Demand,' makes the case for adding Environmental Change to the original DTU factors as 'DTU+E'. Environmental Change encompasses a number of trends, notably environmental regulations; new market standards such as environmental certification; and an increasing awareness of climate change impacts such as flood risk.
'Investments in sustainability need to be customised for specific markets and sectors as regulations and green building rating systems vary greatly from country to country and even within countries. However, we expect the demand for environmentally-friendly features to grow rapidly, as both tenant and investor awareness will continue to rise,' concluded Mokrane.
