Buildings with strong green certification command higher rents and sales values, while other buildings are falling in value, according to growing evidence that cutting building carbon emissions makes financial sense.

While investors initially doubted the value of certifications like LEED and BREEAM, green certifications result in a rent premium of 6% and a sales premium of 8%, JLL says in a new report on sustainability and the growing value of green.

These so-called "green premiums" are proving materially significant, however, there is another facet to consider, JLL said. Its research showed buildings that don’t evolve to meet sustainability standards will suffer financially — resulting in a "brown discount."

The findings are supported by another study released this week. ESG data intelligence firm Deepki surveyed 100 institutional real estate investors and property professionals in the UK, and found that 66% have already seen a decrease in both the capital and rental value of their portfolios due to poor sustainability performance.

Over three-quarters of the respondents predicted the capital value and rental income of their real estate assets would depreciate by more than 20% if ESG performance does not improve, highlighting the importance of commercial real estate sustainability.

Data from Cushman & Wakefield revealed by Bisnow last year showed only 4% of London office buildings currently meet the minimum energy efficiency standard regulations that will come into force in 2030, meaning that investors have a huge amount of retrofitting to undertake if buildings are to be brought up to code.

“Real estate investors and owners recognise that they will see the value of their assets decline if they do not make the transition to net zero,” Deepki UK Head Katie Whipp said.

New dimensions are quickly emerging to influence the value conversation, JLL said. Climate risk and resilience, carbon emissions and occupant health are increasingly contributing to conversations around what it means to be "best-in-class" in the built environment.

An April 2021 survey by JLL of nearly 1,000 executives, investors and corporate occupiers found that 83% of occupiers and 78% of investors believe climate risk is financial risk; 79% of occupiers anticipate that carbon emissions reduction will be part of their corporate sustainability strategy by 2025; and 42% of occupiers believe that their employees will increasingly demand green and healthy spaces.