ESG premium could take the sting out of transition costs
ESG is one of many factors currently driving the market, is the cause of considerable change and momentum is building according to Colliers direct Damian Harrington, the firm’s head of EMEA research.
He said that energy is a key part of this as its cost has increased dramatically in the last year. Property occupiers and owners want to know how to manage that and how to make the assets that they occupy or own more energy efficient and better in terms of operational carbon.
“They’re clearly some of the key targets for investors and occupiers now that, from the occupier side, regulation is changing,” Harrington said.
But he added: “While there’s a real motivation and push towards that, there’s still a complete lack of evidence because we’re at such a nascent stage in terms of how you really make your buildings more energy efficient.”
A key question is how the cost of improving a building’s energy performance can be recovered. “Can you get that back in terms of reducing the cost to an occupier, but perhaps charging them a higher rent, so that the cost to them doesn’t change but you can somehow capitalise an income stream from it,” Harrington said
Although real estate is at an early stage in determining how that occurs capitalising the increase in rent could create a strong premium on assets.
“It could lift your asset value by up to 10% into markets,” he said. In markets that are already quite advanced in terms of having low-cost energy and more efficient buildings the increase would be less
“The market is really mixed in terms of where it’s at, but this is clearly a big factor for the investment and occupier communities to get right as part of this journey towards a better, cleaner, more carbon-free world.”
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