The Future of Sustainability

The property industry is going green.  While some are busy implementing energy saving measures and sourcing renewables, many in the sector are trying to forecast what the impacts will be.

Concerns about green issues vary.  Property owners need to ensure their returns and values are sustainable.  Occupiers question whether business benefits offset the cost of investing in the environment.  Developers and investors want to know if providing more environmentally friendly properties will translate into improved market value. 

Green buildings have been discussed by architects, designers and engineers for over a decade but few have been delivered in the UK.  Even fewer have been sold as investments, making it difficult to quantify whether they secure better prices than traditional stock.  As accounting practices increasingly adopt a triple bottom line approach of: people; planet; and profit, it’s clear that property can contribute to efficiency and competitiveness in business.

There is no obvious green dividend as yet but there are visionary and occupational benefits such as lower running costs and energy efficiency.  Less tangible benefits include improving staff morale, projecting a positive business image and upholding a commitment to corporate social responsibility.

Given the shortage of development sites in most towns and cities, retro-fitting existing stock (retrospectively fitting existing buildings with new equipment) may be a key ‘green’ opportunity in the UK.  Making properties more adaptable can help ‘future proof’ them for changing working practices and technological advancement.  It can also lead to better use of space through enhancing the efficiency of floor plates.  The benefits of creating a better working environment can improve productivity, reduce absenteeism and reduce staff turnover. 

Retro-fitting buildings in city centres will ensure that existing properties will be enhanced to remain attractive to occupiers, clients and the workforce.  They are a good alternative to building new greener properties in out of town locations where tenants and staff be may less inclined to locate and commute to due to reduced transport options and leisure facilities such as shops and restaurants.

Climate control is a further key issue.  The right system can improve occupational demand and reduce depreciation in property values.  The use of cost effective waste and water disposal solutions is often relatively inexpensive and offers environmental gains.

The benefits of creating greener property have the potential to translate into value as pre-lets are agreed, higher rents are achieved and rental voids are reduced. Globally, blue chip tenants lead the demand for more environmentally friendly space; they are more likely to sign up for longer leases when assured they can meet environmental targets through their property.  Landlords of green buildings may find themselves in a stronger bargaining position, negotiating longer leases with attractive tenants.  This has the potential to result in higher market value for greener properties than non green stock.

The link between greener property and value are yet to be proven in the UK but examples from other world areas show that it is recognised and taking effect.  RICS conducted The Green Value Study in late 2005 and found a strong link between market value and green features and performance.  It considered case studies from Canada, the US and the UK and also polled developers, owners and investors across all sectors. 

As the green agenda raises its profile, the impact of energy performance assessments, the increased presence of ethical investors and the trading of green Reits in the US all need to be monitored.  A very global issue is having a direct impact upon our immediate environment but the ‘threat’ of increased environmental and social legislation offers a real opportunity for the property industry. 

For further information: brian.allen@ryden.co.uk