“The business case to invest in green buildings is becoming more compelling every year,” says Brian Wilkinson, CEO of the Green Building Council of South Africa (GBCSA), citing the results of the latest IPD South Africa Annual Green Property Indicators.
Released in July 2015 by MSCI Inc, a leading provider of research-based indexes and analytics, the IPD South Africa Annual Green Property Indicators 2014 show that properties with top-quartile energy and water efficiency delivered an ungeared total return of 12.1. Less efficient buildings, however, delivered a total return of only 9.4%. Green buildings therefore outperformed their conventional counterparts by almost 30%.
The research was for the year ending December 2014. It consisted of the IPD SA database of 1,726 properties valued at more than R264 billion, of which the Green Property Indicators assessed a subset of 597 commercial buildings across 14 property types.
Property owners contributing to the indicator in 2014 were Growthpoint Properties, Hyprop Investments, Old Mutual Property, Pareto Limited, SA Corporate Real Estate Fund, Delta Property Fund, Vukile Property Fund Limited, Emira Property Fund Limited, Attacq Limited and the Liberty Property Portfolio.
Wilkinson comments: “The total return of 12.1% on greener buildings illustrated in the latest index results is 270 basis points (bps) above the balance of the sample of properties. In 2013, green properties outperformed normal commercial properties by 170bps, which means that the 2014 results show an even higher return for green buildings. This is remarkable and makes an even stronger business case for investing in green buildings.”
GBCSA fully supports the IPD South Africa Annual Green Property Indicators. Launched in conjunction with the GBCSA, it is now in its second year and is released annually to track the performance of greener, more energy- and water-efficient properties in South Africa.
“The index confirms that for property owners, investing in energy and water efficiency as well as green building practices makes both environmental and economic sense. This innovative index is set to become an important tool in the evaluation of both portfolio performance and in turn, asset and portfolio value. We anticipate this will further drive green building practices and investment in South Africa,” says Wilkinson.
The superior performance of green buildings according to the IPD research was driven largely by a higher capital growth of 5.5%, compared to the significantly lower 1.8% achieved by the balance of the sample. This capital growth was as a result of higher occupancy rates and a superior net income growth.
“Electricity, water and waste-disposal are amongst the chief operational costs in most buildings. Green buildings provide the opportunity to significantly reduce these costs. Given that utilities typically account for more than 30% of a building’s operating expenses, and green building significantly reduces these, the impact on Net Operating Income is substantial. Furthermore, and on a capitalised basis, the effect of green building practice on building valuation is indeed powerful,” comments Wilkinson.
“There is no doubt about the hugely positive impact green building, and especially energy efficiency measures, are having on the commercial property sector in South Africa. The benefits to occupiers of green buildings have already been widely established. Green building creates healthier, more productive environments that are less costly to operate. This research shows us that for owners and investors in greener buildings, these properties generate higher returns and are more sustainable investments.
“We can now say with confidence that green building creates dual value for both owners and occupiers in South Africa. And better still, this means that green buildings not only ‘do good’ at an environmental level, they ‘do well’ at an economic level,” he concludes.