Everything comes with a price – including the future of the real estate sector
November 25, 2022 4 Minute Read
With COP27 behind us, achieving the 1.5°C climate target seems challenging, unless significant progress is being made in three primary sectors that drive emissions: energy, transport and real estate. The European Commission has proposed in the Climate Target Plan 2030 to cut net greenhouse gas emissions (GHG) in the EU by at least 55% by 2030 compared to 1990. An essential component for action is energy efficiency, with the building sector being identified as one of the areas requiring efforts to be ramped up. However, the current approach applied within the commercial real estate (CRE) industry is being viewed as somewhat efficient but too slow, holding CRE stakeholders accountable for aspirational goals rather than specific achievements.
For the CRE industry to scale up the sustainability agenda, a business case around sustainable buildings needs to be clear. Currently, the discord lies between the perception that sustainable buildings generate positive value benefits, and the evidence base to keep up with this perception.
As sustainability certifications are often being used as a proxy for sustainable buildings, they have drawn much attention in empirical sustainability property investment research. Their further alignment with the EU Taxonomy is expected, proving new points for analysing their impact on value creation. However, much of the existing research has been heavily focused on US and UK, with only limited, country based European evidence.
So, CBRE has now repeated a pan-European analysis it first undertook in 2021, CBRE re-took a European analysis, building on data from 18 European countries (38 cities) and being thus, to our knowledge, one of the most comprehensive European analyses ever performed.
Conclusions presented in this report show a significant correlation between sustainability certificates and buildings’ market value. Most importantly, the analysis has revealed that a rental premium exists for certified office buildings, regardless of building year. Hence, certifying both new and existing buildings ensures higher office rents compared to non-certified stock. This is very supportive of the retrofitting challenge outlined by the European Green Deal.
The key highlights from the report are:
- Environmentally certified office buildings represent a growing share of the office market - the certified share stands at 20%, as at mid-2022, compared with 14% in 2019
- Despite growth, buildings with sustainability certifications are still not the norm
- Certified office take-up has risen from 30% of the market in 2019 to 32% now, confirming the trend that leasing activity is increasingly focused on certified buildings
- Certification can be a significant factor in lowering vacancy risk - in the majority of cities analysed, certified buildings command lower vacancy rates compared to non-certified stock
- When the effects of building size, location, age and renovation history are accounted for, buildings with sustainability certification command a 6% rental premium
The findings presented will allow actors in the real estate market to implement their stated intentions and make decisions that are environmentally better, and capable of being measured as such.
Get in touch if you’d like to see our report and discuss our findings.