Going green pays, as well as being the right thing to do. In the first study that quantifies how rental performance is impacted by BREEAM certification, Knight Frank has found that London office buildings that reach the highest standards in sustainability can achieve up to a 12.3% premium in rents.
According to the global property advisor’s analysis, based on rental performance across 2,700 London office buildings, the investment needed to achieve an “Outstanding” rating delivers a substantial pay-back.
Knight Frank’s research can help the property market make better informed decisions about its investments. BREEAM certification is the leading global sustainability assessment method for buildings, which is adopted across more than 3,000 buildings in London.
According to the analysis, a BREEAM “Very Good” rating, which recognises advanced good practice on issues including energy performance and health and wellbeing, results in a 3.7% rental premium on average.
BREAAM “Excellent” results in a 4.7% rental premium, but an “Outstanding” rating – which is achieved by less than 1% of assessed buildings and recognises the most innovative workplaces – results in a significant 12.3% premium.
“These results are very compelling from a capital markets standpoint”, said Kate Horton, partner, London Capital Markets, Knight Frank. “Identifying a clear rental premium for high-end BREEAM ratings is a big factor for investors who are looking to differentiate their buildings from the rest of the market”.
Her forecast is that “as ESG continues to rise quickly up the agenda for both occupiers and investors, we expect to start seeing a ‘green value premium’ for assets strongly aligned with ESG characteristics”.
The analysis has been undertaken using rental data from Q1 2010 to Q1 2021 across 2,700 London assets, with Knight Frank’s methodology comparing buildings on a like-for-like basis according to age, quality, size, submarket location and connectivity to ascertain the rental premium linked specifically to any BREAAM accreditation.
“These findings are really significant in establishing, for the first time, how sustainability monetarily adds value, which is vital insight for investors, developers and all market participants”, said Victoria Ormond, partner, Capital Markets Research, Knight Frank. “This type of analysis moves the conversation on sustainability on from ‘it’s a nice to have’ to ‘we can quantify this investment’, which will help make it a core part of asset business plans and investment decisions”.