Commercial properties that comply with the Green Building Council’s standards have become increasingly trendy in recent years as investors and tenants alike put their money where their conscience is and opt for sustainability in all areas of life and work.
However, environmental ethics is not the only reason to choose a green building. The recent MSCI Green Annual Property index reveals that developments that are GBCSA rated outperform their peers both in terms of capital appreciation and rental returns.
To better understand this encouraging trend, let’s take a closer look at the data and what it means for the commercial property sector.
Going green for better returns
The MSCI’s index – which measures the performance of green office buildings compared to the market as a whole – contains several encouraging statistics that property tenants and investors may want to take note of.
- Income returns on these properties continued to rise through late 2019 (prior to the pandemic) despite a muted performance in the sector as a whole.
- Green buildings reported a substantial 34% higher capital value per square metre than other properties, reflecting higher capital growth and operating income during the period.
- The 105 green rated buildings (out of a total of 293 properties surveyed) returned an average of 7.6% in 2019 against 5.1% for the rest of the market.
This superior performance reflects the broad appeal of green architecture in the commercial real estate market – but there are more specific reasons why these buildings outperformed non-GBCSA rated office spaces in 2019.
Why green office buildings have a lasting edge
Taking a closer look at the MSCI data, it becomes clear that green buildings don’t just enjoy greater popularity but are also more affordable to finance and maintain.
Properties of this type enjoy lower discount rates (a measure of investment risk) since they are seen as more in demand and sustainable than older or environmentally unfriendly alternatives.
This view is supported by the lower occupancy rate enjoyed by green developments in South Africa (8% vs. 11.5% in the market as a whole). They also require less capital expenditure (0.7% against 1.2%) and show lower operating cost ratios.
These factors combine to produce higher capital growth and operating profit – the two key considerations that any property investor takes into account when assessing a building for financial viability.
Invest in a sustainable future with us
If you’re keen to buy or rent office space in a green building, our team of area specialists would love to guide you in the right direction. Contact us today to schedule an appointment or find out more about the properties in our portfolio.
