Pan-European retail real estate specialist Redevco says it has carried out research revealing a clear link between rent levels and the intensity of energy consumption in two major retail property asset classes.
Pan-European retail real estate specialist Redevco says it has carried out research revealing a clear link between rent levels and the intensity of energy consumption in two major retail property asset classes.
The research shows that high street leases with a high rent per m2 have a high energy intensity. High street leases with a low rent per m2 have a low energy intensity. For retail parks the data demonstrates the opposite, with a high rent per m2 corresponding to low energy intensity.
The publication of the research coincided with the release this week of the results of the 2014 Global Real Estate Sustainability Benchmark Survey
Redevco believes that the findings of its research may have implications for lifting future investment performance by integrating sustainability into asset management. It could also help retailers to manage a key element of their costs as European energy prices trend higher.
Derk Welling, Redevco’s head of corporate responsibility, said: 'Our research indicates that the influence of energy consumption on store profitability is greater for retail parks than for high street retail. We started researching the impact of improving environmental performance, particularly energy consumption, and its relation to real estate financial performance in 2008, but could not find a link then. Now, with significantly more data, and a change in our analytical approach, we may have uncovered a new benchmark or investment market outperformance indicator, that could also prove to be good for the environment.'
Redevco’s €6.5 bn portfolio of 450 properties is spread across the strongest retail locations in Europe and attracts major retailers such as C&A, Carrefour, Starbucks, GAP, Primark and H&M. As the largest share of Redevco’s portfolio consists of high street properties (high street 55% and retail parks 19% of invested volume) and the company is one of the biggest private investment managers in this real estate sector, it is an effective pan-European proxy for measuring retail sustainability trends.
UNIQUE RESEARCH
Welling said the research, contained within Redevco’s Responsible Real Estate Investment 2013/2014 report, differed from other studies on the subject because it examined the correlation at the retail lease level rather than at the property level.
Secondly, while most existing studies have primarily looked at retail properties in general - where in Europe no significant relationship between financial and energy performance has been found - Redevco’s research and strategy department made a distinction between high street retail and retail parks. As not every lease and building is comparable, the correlation is controlled for these differences and also for local market characteristics.
When corrected for energy intensity, the research showed that energy costs as a percentage of annual rent appear to be significantly higher for retail parks than for high street properties - on average even double. In the case of sports retailers, for example, energy costs were found to be on average 10% of annual rents in retail parks compared with 5% for sports retailers on the high street.
Welling concluded: 'Although it may appear from these research findings that high street retailers have less incentive to reduce their energy consumption than those in retail parks because energy seems to make up a smaller proportion of costs relative to the higher rent levels for these locations, I think we’ll see a "flip-over" point where future rising energy unit prices will lead to an intense focus on this element of the sustainability and asset management mix.'
The full Responsible Real Estate Investment report can be found at www.redevco.com/cr