More information on energy efficiency and the environmental impact of real estate investments is urgently needed if the industry is to move forward in reducing carbon emissions, according to a panel of investors at the ΒιΆΉΣ³» Real Estate Conference & Awards.
Speaking at the Milan event, David Ironside, chief investment officer for continental Europe at LaSalle Investment Management, emphasised how important it was to gather such data to create stronger environmental performance in the future.
βWe have been signing a lot of green leases with tenants where weβve been requesting that they give us their energy details,β he said.
Ironside said regulation played a key part in allowing energy data on real estate to be collected. βWhat weβve seen is that legislation has been the lever that has given us more data,β he said.
βIn France, where the tenants are obliged to give the data, we do get a lot more data and in Germany the response rate to green leases has been very poor because thereβs no obligation to do that.β
During a panel debate, Abigail Dean, head of sustainability at TH Real Estate, said that, as a global investor, identifying which buildings were actually sustainable was one of the most significant challenges.
βWe have the likes of BREEAM and LEED specification, but ultimately they donβt actually tell you how operationally efficient a building is,β she said.
Without that knowledge, it is very difficult for value to be assessed, she said.
If Australiaβs system of ratings based specifically on energy-efficiency performance were to be introduced in Europe, she said this would go a long way to establishing a clear link between rental value and operational energy performance.
Asked if she thought it would be worthwhile for the industry to push for the creation of this type of measure, Dean said: βAbsolutely, and that would be my call to arms.β
Martin BrΓΌhl, CIO at Union Investment Real Estate, favoured bottom-up self-regulation as opposed to top-down imposed regulation.
βFrom the experience I think we all share from the GFC, regulators sometimes get involved and overdo it, and they swing the pendulum far too far in the opposite direction,β he said.
BrΓΌhl said his firm had analysed its β¬35bn real estate portfolio with regard to stranding risk β unforeseeable devaluation of assets which he said could happen to some assets because of environmental regulation.
βWe have built this into the investment strategy when it comes to buying new assets into the portfolio but also when it came to the sales programme,β he said.
Mathieu Elshout, senior director, private real estate at PGGM, said the Dutch pension fund manager was in the process of trying to understand the environmental impact of all its assets, including its property investments, and more data was needed.
βWhat we also are working on is mapping our full real estate portfolio which is more or less β¬20bn global, so we need data from every asset we have exposure to,β he said.
BrΓΌhl said the valuation profession was working on integrating climate-related risks into the valuation process, but that such efforts had not yet reached their goal.
βThereβs progress, but its sluggish and its sometimes frustrating as an end user.β he said.
Roxana Isaiu, director ESG and real estate at GRESB, said: βI think the crux of that issue is the need for more data and better data in general.β
Ironside said that LaSalle estimates that buildings with strong βgreen credentialsβ could add a premium of up to 12-14% to their value, Ironside said.
βWeβve certainly seen that they lease well, so improved occupancy levels are something that we do believe in,β he said.
In addition, assets with good environmental qualities were more liquid, he told the conference in an address. βGenerally, they are better buildings, so there should be less obsolescence because they are planned for the future,β Ironside said.
Breaking down the added value that green buildings could potentially have compared to less environmentally friendly real estate assets, Ironside said improved occupancy levels could result in 10bps of yield compression, and greater liquidity could lead to a similar result.
Reduction in obsolesce could give 15bps of yield compression, increased leveraging opportunities could give 20bps and better quality tenants resulting in 10bps of yield compression, he said.
