King Sturge stresses good governance in sustainability battle

More efficient use of buildings and places will produce a far faster environmental payback than the onsite micro-generation of renewable energy, according to new research report published by King Sturge. The report stresses the importance of good governance in meeting the economic and social challenges facing by the property sector.

Most existing energy-rating systems for buildings, such as the Breeam in the UK or the HQE in France, focus today on environmental sustainability for new projects. But the quality of construction of many buildings already in existence is a major challenge; just 1%-2% of buildings are replaced per year and over 70% of buildings were built before 1985. Preparing the built environment for climate change is becoming a critical issue in particular for low countries such as Belgium or the Netherlands. Rising insurance costs, to cope with floods, storms and fires will impact on all occupiers and investors.

In some parts of Europe, investors, financiers and occupiers are not yet taking the subject of corporate social responsibility seriously but are waiting for laws to change. But new analysis addressing the costs of sustainability issues for occupiers, shows that prime investments (producing a real return of 5%) will suffer far more investment depreciation than secondary investments where rents are relatively low - perhaps losing as much as 28% in value.

High-rent prime investments (such as in Central London) will also suffer less asset depreciation - perhaps losing only 8% of value. An adverse yield shift (reducing the capital value at the end of the investment in 25 years ) will cause more asset depreciation for lower-rented prime and secondary investment than for higher-rented property.

The EU directive on the Energy Performance of Buildings should be fully implemented by January 2009. In some cases local governments appear to be far more aware of the issue of sustainability than central government. As at mid-2007, the EU Commission was taking legal actions against Greece, Poland and Estonia for failure to implement the European directive and lay down minimum standards for buildings.