23.01.2018 / Per Stabell Monby
International data shows that sustainable new buildings boost commercial value on a number of key parameters. This suggests that there are even greater gains to be made from investing in sustainable renovation.
The claim that it pays to build sustainably is not new. Now data indicates that it is true.
The data is collected from several thousand projects in countries as far apart as Australia, Finland and the USA shows that the return on investment can be significantly higher if the construction of office buildings follows the principles of social, economic and environmental sustainability.
At the most basic level, it is a matter of focusing on a number of relevant parameters when we set out to optimise the returns from an asset investment.
In the initial phases, people often focus too narrowly on the initial price and not on the long-term impact that the specific office building can deliver to investors and tenants. This often results in an excessively narrow focus on the cost of construction rather than on the desired long-term commercial benefits, which serve both investors and tenants much better.
If we take office buildings as an example, three parameters relating to sustainable buildings have a particularly clear impact on the bottom line for investors: Rental price, the exit value and the occupancy rate.
Based on these international research findings, we have developed a new calculation method which shows that long-term investors in new office properties can often increase their returns by 10-12 per cent.
The average occupancy rate is also typically much longer. This reduces the risks of the investment, so we also find that we can obtain financing through ‘green bonds’ when assessable, which recently have had interest rates of 0.5% to 0.8% lower than similar bonds, in cases where the building can be classed as sustainable.
Our calculations also show that tenants can boost their bottom line substantially by paying slightly more in rent in order to achieve higher productivity and lower operating and maintenance costs – the typical factors are more than 1.8 between increased productivity and increased rental costs.
The average occupancy rate is also typically much longer. This reduces the risks of the investment, so we also find that we can obtain financing through ‘green bonds’ when assessable
Although location is still the trump card in the property market, experience from around the world shows that parameters such as indoor climate and the ‘feel good’ value of operating within sustainable limits – and being able to tell one’s acquaintances about it – are increasingly highly rated.
For one thing, there are a number of health benefits, because it is quite simply easier to breathe and maintain concentration when sustainable solutions have been used in the building.
The collected data only covers new buildings, but there is reason to believe that the impact is even greater from investment in sustainable renovation, because this takes in the vast bulk of the building stock and the potential for improvement is much greater.
I still meet people in the construction industry who think that sustainability is too expensive and generally incompatible with commercial success.
As outlined above, the reality is quite different. The initial bill may well be bigger. But extensive data sets show that we can achieve better returns over time by investing sustainably.
The price of not acting in a sustainable manner is actually higher.