SA’s sustainable properties deliver effective return

MSCI Inc. has released the 2015 results of the IPD South Africa Annual Green Property Indicator. The Indicator, sponsored by Growthpoint Properties, strongly supports the investment case for energy efficient buildings in the commercial property sector.

For the year ending December 2015, properties with top-quartile energy efficiency delivered a total return of 12.5%, 140 basis points (bps) above the balance of the sample which delivered an 11.1% total return. This out performance was driven by superior capital growth (+60bps) and income return (+70bps) relative to the balance of the sample. This reflects the continued trend that underlies the long-term financial performance of sustainable buildings.

The IPD South Africa Annual Green Property Indicator, in conjunction with the Green Building Council of South Africa (GBCSA), is released annually and tracks the benefits of energy-efficient (water and power usage) buildings to investors. It compares the investment and fundamental performance of properties with top quarterly energy efficiency to the rest of the MSCI sample, which represents a large portion of the South African commercial property sector. These more efficient buildings consumed approximately 35% less electricity and 42% less water per square meter of occupied space compared to similar buildings for the period under review.

The Indicator’s three-year ending December 2015 cumulative total return out performance stood at 5.3%; and net income outperformed by 2.1%. The longer term out performance was driven largely by a superior capital growth – resulting from a higher occupancy rate, lower discount rate and a lower level of capital expenditure.

Stan Garrun, Executive Director, MSCI, commented: “The 2015 results echo the robust results of prior years; our three years of tracking the performance of efficient properties show that energy-efficient buildings delivered a higher income return, enjoyed better capital value per square meter, benefited from lower vacancy rate, and required a lower capital expenditure as a percentage of capital value. The Indicator shows unequivocally that on aggregate green buildings provide better investment return.”

Garrun added: “Interestingly, the energy efficient properties were, on average, older than the balance of the sample. This highlights the positive impact of retrofitting and other sustainability initiatives on investment performance.”

Brian Wilkinson, CEO, GBCSA, commented: “GBCSA has fully supported the IPD South Africa Annual Green Property Indicator since it was first launched in 2014. The strong business case to invest in green buildings becomes more clear-cut each year. Making it even more compelling, the GBCSA Guide to Costs and Trend Report shows green buildings have an average cost premium of only 5% more than conventional buildings, and this can be as low at 1.1%. The Indicator’s revelation that older buildings outperformed their new counterparts confirms that all buildings – old and new – can outperform their conventional counterparts.”

Rudolf Pienaar, Divisional Director, Growthpoint Properties, commented: “We are proud to sponsor the IPD South Africa Annual Green Property Indicator and empower property investors with a quality research indicator that clearly demonstrates the benefits of green buildings. We hope it will encourage more sustainable development and green building certification in South Africa. A bigger and more diverse pool of resource-efficient properties will drive a greater desire for businesses to occupy green buildings.”

In 2015, the MSCI universe consisted of 1,524 properties valued at more than R291bn of which the Green Indicator considered a subset of 795 commercial buildings across 14 property types. The Indicator is now in its third year and signals a growing understanding that sustainability parameters, such as resource efficiency, are an important consideration for long-term financial performance.