Sustainable real estate investment: What do we know?

Transcription

1 Sustainable real estate investment: What do we know? Piet Eichholtz Maastricht University VBA Seminar Duurzame Vastgoedbeleggingen

2 Real estate and green investments Industry is key in reducing carbon emissions Property industry consumes resources and pollutes 40% of global consumption raw materials (even 55% of wood) 80% of electricity consumption At least 30% of global CO2 emissions Energy represents 7 9% of occupancy cost in commercial real estate Many energy-efficiency investments in property have positive net present value Better insulation, technology, and building management all create shareholder value at current energy prices (McKinsey, 2009, 2013) First evidence shows very high IRR s for energy investments Academic studies show indirect returns on green or energy efficiency so green property investments often do not conflict with financial goals of (institutional) investors

3 How to measure greenness in real estate? Building and portfolio sustainability certificates

4 Findings from research on office buildings Eco-investment real estate is not only doing good Ceteris paribus, green buildings: % higher rents, 6-7% for effective rents 2. higher, and more stable, occupancy 3. higher selling prices by 11-13% A $1 saving in energy costs is associated with an increase in effective rent of 95 cents Similar effects found for offices in other countries and time periods Netherlands, UK, Canada, Australia

5 Findings for housing are clear Eco-certified housing sells and rents for more, and have better liquidity Study Country Transaction Type Brounen and Kok (2011) Cerin et al. (2014) Hyland et al. (2013) Feige et al. (2013) Yoshida and Sugiura (2015) Deng et al. (2012) Zheng et al. (2012) Dastrup et al. (2012) Kahn and Kok (2013) The Netherlands Sales Energy-Efficiency Measurement Energy Performance Certificates Sweden Sales Electricity consumption per sq. meter Ireland Sales and rental Building Energy Ratings Findings +15% for a G to A label jump +0.03% for -1% in consumption +16.6% in price, +4.6% in rent for label G to A Switzerland Rental Sustainability features -2.9% for a +0.1 in the energy-efficiency rating Japan Sales Tokyo Green Building Program certification Singapore Sales Green Mark certification China Sales Marketing greenness (Google Green Index) -12% for certified buildings +4-6% for certified buildings +17.7% for the most green dwelling U.S. Sales Solar panels % for homes with a solar panel U.S. Sales Energy Star, GreenPoint, LEED certification +2-4% for certified buildings Notes Dwellings with a high quality energy label, C and above, trade at a premium. Only the most energy-efficient homes benefit from a slight transaction premium. The impact of a Building Energy Rating is stronger when selling conditions are more difficult All sustainability features are positively related to the rent level of housing except for energy-efficiency. Initially green apartments trade at a discount; slower depreciation rate leads to a price premium. Transaction premium varies with the quality of the label. Most energy-efficient dwellings receive the highest premium. Properties marketed as green sell at a premium, they resell and re-rent at a discount. Premium is higher in streets where fewer homes have solar panels installed Certification matters more in hotter climates and in areas with higher energy prices.

6 Sustainability and performance at portfolio level Evidence for US REITs, Portfolio greenness enhances operating performance: ROA, ROE and Cash Flow/Total Revenue. Different from analysis of financial performance of green properties, these measures are net of costs. No effect of greenness on abnormal stock returns, indicating that market already corrects for portfolio greenness. Portfolio greenness decreases market risk (β). Higher green building occupancy, less exposure to energy prices Recent study by Cambridge University finds that GRESB score and financial performance listed property companies are related

7 Average green share What are investors doing? Big differences across property specializations 14% Average Green Share by US REIT type 12% 10% 8% 6% Industrial Office Residential Retail Mix Speciality 4% 2% 0%

8 Industry-wide GRESB scores keep improving But listed funds do better than private ones

9 Where s the research heading? Building cost, cost of capital, other property types, health We know the benefits of sustainable real estate, but what about the cost? Return assessment difficult without knowing costs Finding data is a big hurdle Are sustainable buildings cheaper to finance? Research into (green) bonds, mortgages, WACC Could be big market-based incentive towards greenness How about sustainability performance in retail, logistic, alternatives? No research yet, but likely to change Health in buildings is the next big thing Sensorization, internet of things Interesting first results

10 Conclusions: responsible investment in real assets Sustainability and fiduciary duty seem to go hand in hand Real estate plays crucial role in climate emission reduction, and is improving sustainability performance Sustainable office buildings have higher rents and values, better occupancy Sustainable housing has higher price, more liquidity, and seems to have higher rent These results feed through to portfolio level Sustainable REIT asset portfolios give higher ROA, ROE, cash flow, and lower beta But there is still a lot we do not know: let s get to work!