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New data shows that the greenest office buildings are now selling for more than a quarter more than their less sustainable counterparts.
London office buildings with a BREEAM or LEED certification sold for an average 26% more than uncertified buildings in the third quarter of 2022, MSCI said in its latest quarterly capital trends report.
The company undertook a study of London office prices, controlling for factors like age, size and submarket location, to create what it called a "hedonic analysis" of certified and uncertified buildings. It found the premium was not just limited to London — the same result held for Paris, too.
MSCI’s data also highlighted how sustainability has grown in importance in the last four years. With data that goes back to 2013, it found that until 2018, there was essentially no link between sustainability and price: In some quarters buildings with no sustainability certification sold for more than greener buildings and vice versa.
But in mid-2018, a pattern started to emerge. In the third quarter of that year, certified offices sold for a 1% premium to uncertified offices. With the exception of a couple of quarters, the premium has steadily grown each quarter since, with the graph heading up and to the right to reach 26% in Q3 2022.
“The property industry has changed in the last three-to-four years, with occupiers and owners acknowledging the urgent need to mitigate real estate’s contribution to climate change,” MSCI wrote. “This shift has meant an emphasis on buildings that already meet, or have the capacity to meet, ambitious carbon-reduction targets.”
The buildings are getting more and more valuable as more and more large investors put in place carbon reduction targets for their real estate portfolios, such as net-zero targets. In addition, office occupiers are demanding more sustainable offices.
In September last year, Knight Frank and BREEAM found that London offices with an outstanding sustainability rating got a 12% rental premium, again using a hedonic analysis. Buildings with a very good rating received a 4% premium.
“London is an ideal petri dish, having one of the largest pools of green buildings of any global city,” Knight Frank Partner, Capital Markets Research Victoria Ormond said.
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