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Sustainability can help ‘future-proof’ commercial property market

Recent research reveals that 35 percent of commercial property occupiers have no environmental policy or targets in place

Last week Footprint attended Sweett Group’s breakfast seminar ‘Sustainability – The Business Case for Commercial Property’ along with over 60 industry members. The topic on the table was the demand for sustainable buildings, associated risks and benefits for investors and the opportunities ahead.

Louise Ellison, Head of Sustainability at Quintain Estates & Development, underlined the importance of sustainability to the property business partly as a compliance issue for planning or BREEAM, but also as a business risk or opportunity depending on your standpoint. In Quintain’s experience, less sustainable commercial property depreciates faster; a more sustainable property is likely to remain attractive to clients in 5 or 10 years’ time, and perhaps more importantly will aid in atrracting and retaining an occupier.

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‘The Forum’ - a main hub at Bristol & Bath Science Park

At Bristol & Bath Science Park, which features buildings by Aedas and Alec French, Quintain attribute its early lettings to green credentials such as natural ventilation and electric bike and car rental. It is, however, trickier with existing buildings where sustainable improvements are not always economically feasible. ‘Rapidly evolving regulatory agenda’ was also identified as a business challenge, especially with regard to retrofitting existing stock.

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‘SPark One’ - entrance buildings to Bristol & Bath Science Park

A problem facing those trying to ascertain the added-value of sustainability to the property market is sourcing robust supportive data. The seminar’s next speaker, Charles Woolam of SIAM (Sustainable Investment & Asset Management LLP) gave insight into the daunting task of putting figures to the subject. Having surveyed over 2000 commercial occupiers in last three years, SIAM have come up with their own ‘universe’ of facts and figures that show the relationship between sustainability and risk – defined as the risk to future income and to incurring significant capital costs for unsure return.

57 percent of SIAM’s sample have environmental targets and/or policy, but somewhat alarmingly, 35 percent had no policy at all. As for possession of an Energy Performance Certificate (EPC) a surprising number of their spread was unrated. What was evident from SIAM’s survey was that many investment property owners have yet to consider the impact of sustainability-related risks on the future performance of funds.

Graph showing EPC's of buildings in SIAM's 'universe'

Graph showing EPCs of buildings in SIAM’s survey

Charles Woollam warned it is vital for commercial property owners to assess future-proofing and come up with a plan as soon as possible. He predicted that ‘shrewd investors may end up selling those properties where the emerging risk outweighs their more positive attributes and replacing them either with buildings which are already adequately “future-proofed” or with ones where the cost of future improvements is most likely to provide an adequate return without fear of premature statutory interventions.’

This is, according to the speakers, a major business challenge to sustainable buildings – there is not always a clear business case for ‘greening’ up a property but looking to the future there are definite strategic benefits. Richard Quartermaine from hosts Sweett reiterated this by pointing out that the DECC is aiming that all buildings will be brought to at least an ‘E’ rating by 2018. Perhaps the greatest pressure on property investors is fear of unlettable stock; this means that a sustainable, efficient building with lower energy/in-use costs is likely to fare better in the marketplace.

Read more on Footprint about the value of sustainable office buildings from an occupier’s perspective here.

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