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'Green Premium' and 'Brown Discount' – do they exist?

Sustainablity and value debated at the BCO Conference 2012

In the blistering heat at Manchester’s BCO Conference 2012 last week, I was one of two women surrounded by suited men ready to debate the value of sustainable buildings from an occupiers’ perspective.

Gardiner & Theobold’s Richard Francis,well-known on the sustainability circuit, chaired the event titled ‘Building Wealth: Is sustainability worth it?’. Held in the Manchester Central, the seminar was one of several dozen events held over three days which brings members of the industry from all over the country.

Richard Francis of Gardiner and Theobold

Richard Francis of Gardiner and Theobold

Set to debate sustainability and value, the line-up included:

Miles Keeping of Drivers Jonas Deloitte

Neil Meredith of Schroders 

Philip Irons of Benson Elliott Capital Management

Christopher Richmond of PricewaterhouseCoopers

Opening the session, Miles Keeping discussed the existence of green premiums in buildings. One study showed that there was a premium linked to sustainable buildings – however Miles was quick to state that the evidence gathered was from a small crop and not accurate, ‘it’s nonsense’. ‘Green buildings hold their value and reduce obsolescence risk – but there is no clear evidence to show green premiums exist’.

AHMM's Angel Building - example of a sustainable retrofit project

AHMM’s Angel Building - example of a sustainable retrofit project

Miles predicts that properties which don’t meet market expectations in the future will be cheaper to rent/lease (the so-called ‘brown discount’), while good quality, well-designed buildings will be let at a higher rate but this is not necessarily linked to a property’s sustainable features.

Neil Meredith of Schroders provided an institutional view on value in sustainable development. Meredith’s reference of O’Riorden’s 1985 quote on sustainability - ‘Exploration into a tangled conceptual jungle where watchful eyes lurk at every bend’’ - was suggestive of a continued lack of understanding in the industry over the last three decades. Discussing the risk of the Government’s legislation Energy Act 2011, which will make any property rated EPC F or G unable to be let or sold, Neil questioned whether this will force owners to upgrade their property stock – OR result in vacant buildings throughout the country, providing a less sustainable solution for the property industry.  

Disused building, Liverpool

Disused building, Liverpool

Neil’s view is that the Government have developed various strategies to promote sustainable development, but never carried them through. This includes the adjustments to the feed-in tariffs which have created uncertainty for the solar industry. Government are also set to increase taxes on energy use to fund wind and solar energies – ‘is this just a cover-up for what essentially is a sustainability tax?’ he asked.

Philip Irons of Benson Elliot tackled a different topic, asking ‘where’s the opportunity in sustainability?’ He interviewed 12 agents and found that sustainability was ‘one of the first nice-to-haves that falls away once reality kicks in’. Following the 70% energy cost increase since 2004, Philip thinks that the Energy Act 2011 is a good move by the Government and could force a number of tenants to upgrade their space. 

Regulation for minimum energy efficiency standards could impact market value and investment worth of buildings, since increasingly buildings which do not meet an ‘E’ on the EPC scale will face obsolescence. This could result in a ‘brown discount’, where the worst performing buildings will be less attractive to owners and occupiers until their energy efficiency is addressed.

‘The green premium is likely to remain elusive, widening the brown discount and creating opportunity for rental growth’, according to Irons.

Fosters and Partners’ Seven More London

Fosters + Partners’ 7 More London

Last up and focusing on Fosters + Partners’ 7 More London, previously on Footprint here, Chris Richmond of PricewaterhouseCoopers offered a tenant’s perspective. Sustainability was a major driver for the office fit-out for the multi-national firm’s London office.

Fosters and Partners’ Seven More London

Foster + Partners’ 7 More London

The 60,884m2 ten-storey headquarters was the capital’s first BREEAM Outstanding commercial building when it completed in 2010. The building features heat recovery, out of hours zoning, 100% recycled or recyclable materials including 80% recycled aggregate in the concrete, and solar hot water.. The fit-out by BDP incorporates approximately £1.25 million in sustainability features funded by PricewaterhouseCooper with an estimated 3-4 year payback period.

Energy Efficiency Rating table

Energy Efficiency Rating table

The central London project, which boasts a 70% reduction in carbon emissions over Building Regulations Part L 2006, achieved largely through the use of biodiesel, did not pursue PVs as a renewables option. The payback period for PVs was predicted at 40 years. However, this has not hindered them obtaining an EPC A-rating.

After a year of post-occupancy monitoring, these results are in:

Gas consumption: 19.4% lower than predicted

Energy consumption: 17.4% lower than predicted

Generators provided 47% building power

310,000 litres of biofuels used [made from used cooking oil]

PricewaterhouseCoopers are now considering pursuing individual carbon footprint monitoring to encourage healthy competition and even recycling archive files to make hand towels.

Archive Files

Archive Files

The multinational firm is also looking to upgrade all of its property portfolio. Their Embankment Place office is currently six months into a two year refurbishment with a target to achieve BREEAM Outstanding.

Embankment Place, London

Embankment Place, London

The session concluded with a debate, highlighting the key themes which emerged throughout the afternoon. BREEAM received some negative feedback from the panel and the audience. It was suggested that the leading UK certification system requires simplification and streamlining. LEED now accepts BREEAM credits creating greater flexibility, a move which should be considered by BREEAM.

The overall conclusion was that relationship between productivity and green buildings is not evident yet. Neil Meredith noted, ‘We can’t find any proof of value between buildings which are or are not sustainable’. Miles Keeping would like to see the Government live up to their claims to be the greenest Government ever, ‘the greenest Government ever is useless and pathetic’.

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