CBRE: energy-efficient assets deliver better financial returns
Energy-efficient commercial property assets in the UK continue to exhibit stronger capital growth and total returns compared with energy-inefficient assets, according to CBRE’s latest Sustainability Index, which has just been published.
Sam Carson, Head of Sustainability for Valuation and Advisory Services, CBRE
Since the start of the index in Q1 2021, all energy-efficient commercial property assets have recorded total returns of 16.2%, compared with 11.2% for the inefficient sample. In H2 2024, total returns for energy-efficient assets (5.6%) were slightly stronger than for inefficient properties (5.4%).
Over H2 2024, capital growth for all energy-efficient assets was 1.7%, compared with 1.4% for inefficient assets. Rental value growth was stronger for the energy efficient sample, at 2.4%, compared with 1.5% for inefficient properties over this period.
“What strikes me about the index results as we develop a longer history is how much the relationship between efficiency and investment performance differs between sectors,” said Sam Carson, head of sustainability for valuation and advisory services, CBRE UK. “In the office sector, for example, the flight to quality observed across the market is reflected in weaker performance for inefficient assets, which tend to be of lower quality in several respects.”
The wide performance gap between energy-efficient and inefficient assets in the office sector continued into 2024. In H2 2024, total returns for energy-efficient assets were 3.1%, compared with 2.7% for the inefficient sample. Rental value growth for the energy efficient sample was 3.4% in the second half of the year, more than twice that for the inefficient sample (1.6%).
In the industrial sector, efficient industrial properties have achieved slightly stronger total returns and capital growth, though this sector does not see significant variance in the performance of efficient and inefficient assets. Over H2 2024, total returns for the efficient sample were slightly higher at 8.7%, compared with 8.1% for inefficient assets. Efficient industrial assets delivered stronger rental growth over the second half of the year at 3.1%, compared to 2.0% for inefficient assets over the same period.
In the retail sector the performance gap between efficient and inefficient assets continued in 2024, but both assets appear to have benefitted from improving sentiment in the sector. Total returns for the efficient sample were 4.6% in H2 2024, compared to 4.1% for inefficient assets.
This year, if the UK Government clarifies its position on minimum Energy Performance Certificate (EPC) ratings for commercial property, as it has promised to do, then “we might expect to see a greater divergence in performance in 2025 as markets price in additional risk for inefficient assets”, said Jennet Siebrits, head of UK research, CBRE.
