sustainability performance - value impact

Value impact of sustainability

Linking sustainability and property value

Value impact

Green Desk

Elsbeth Quispel

Ronald Bausch

30 August 2011

Content

• Introduction

• Sustainability impact for corporate occupiers

• Sustainability impact for investors

• Case: “Driving Sustainability Goals of Eco Company”

2

33

Sustainability

� Improves letting ability of current stock and provides opportunities for systemic

vacancy

� Sustainability awareness of investors and occupiers:

� Increasing energy costs

� Reducing carbon footprint

� Corporate Social Responsibility

� Almost 90% of Corporate Real Estate executives consider sustainability aspects

as a factor of influence in their location decisions

Sustainability still hot topic, providing opportunities

24%

36% 40%

11%

50%

14%

25%

0%

20%

40%

60%

80%

100%

Not a factor / not sure A factor taken into account “Tie-breaker” factor Major factor

2008 2009

89%

44

Sustainability impact for corporate occupiers

5

Creating value through sustainability

� Compliance

� Reduced operational costs

� Reduced insurance costs

� Valuation benefits

� Planning approvals

� Rental growth

� Meeting occupier demand

� Future proofing investments

� Brand value

� Reputation

� Investor relations

� Productivity

� Industry leadership

� Innovation

� Regulation compliance

� Recruitment & Retention

Corporate Sustainability Strategy

Strategy Benchmarking Reporting

Investor Sustainability Implementation

Acquisition/

DevelopmentGreen Leases

Renovation/

Retrofitting

Corporate and investor added value

66

Corporate (occupier) sustainability

� Productivity:

Research has shown that offering comfort and a healthy working environment results in a positive effect

on the well-being of employees. This may enhance health and satisfaction and thus increase

productivity.

� Image:

A green corporate headquarters and the use of green space in general, may signal to stakeholders

(investors, financers, clients) and employees that the organisation has a long-run commitment to CSR

policy. If this translates into an improved reputation, such a policy may attract and retain employees and

clients.

� Company risks and opportunities:

Sustainable real estate reduces the risk of reputation damage, but also provides opportunities.

Financers are more critical about the CSR policy of companies, when providing debt. Furthermore,

governments are increasing their criteria with regards to their purchases. And last, consumers are

increasingly demanding sustainable products.

Added value for end-users (qualitative)

77

Corporate (occupier) sustainability

� Efficient use of space:

By applying efficient and flexible workplace, savings on the total housing costs can be realised. By

efficient use of space, the energy consumption is also often reduced.

� Energy reduction:

By using energy efficient and smart systems, or systems that generate or recover energy, energy

savings can be realised to an amount of more than 50% compared to a conventional building

� Productivity:

There is a positive correlation between a building’s internal environment and employee health and

productivity. This may help to reduce labour costs.

� Legislation:

There are plans on panelising unsustainable use of property. These plans are based on energy

consumption taxes and CO2 emissions. If these are introduced, this leads to a direct negative financial

impact.

Added value for end-users (quantitative)

88

Sustainability impact for investors

99


Positive value factors (8)

� Rent value / income

� Increased rent related to improved working climate and reputation

� Service costs savings deducted in rent

� Decreased vacancy risk

� Other factors

� Government and other organizations prefer ‘green’ leases

� Smaller installations (less space /capacity required)

� Write-off period increases

� Future law and legislation

� Tax and subsidies

Negative value factors (2)

� Building costs (triple layered glass is more expensive than double)

� In general, maintenance expenses are higher for a more expensive building

10 sustainability value factors

1010


� Higher rental income

Research has shown that companies are willing to pay higher rents for a ‘green’ building due in part to the superior working environment (indoor air quality) and the positive impact of leasing a ‘green’ building on a company’s image.

� Lower risk of long-term vacancy

There is a lower risk of – long-term – vacancy due to the growing demand for sustainable office space and the current shortage of such properties.

� Lower energy consumption

Sustainable buildings are better insulated and consume less energy, resulting in lower energy costs. By off-setting part of this savings via a premium on the basic rent (e.g. using a ‘green lease’ construction) the actual market rent increases, which positively impacts the value of the property.

� Lower maintenance and system replacement costs

As the buildings are better insulated, sustainable accommodation requires the use of fewer major (heating and/or air conditioning) systems, or systems with a smaller capacity. As a result, the maintenance costs and the costs associated with replacing these systems are lower.

Added value for investors

1111


� Future law and legislation

A ‘green’ building more easily satisfies the more rigorous environmental requirements of the future.

CO2 emission requirements will become stricter in the future. By investing in sustainability now, fewer

additional investments will be required in the future.

� Longer life cycle

The use of sustainable materials means the building will be able to be used for longer. As a result,

sustainable office buildings will have a higher residual value in the future.

� Financing opportunities

Institutional investors like pension funds are increasingly seeking funds with a sustainable profile to

allocate their investments.

Added value for investors

Driving sustainable Goals

of “Eco Company”

30 August 2011

Elsbeth Quispel

Ronald Bausch

Sustainability

13

Sustainability case

• International property owner, with ambitious sustainability goals.

• Property is out-dated, with an Energy Label G.

• Jones Lang LaSalle is executing a sustainable retrofit, this includes:

- Sustainable scenario analysis

- Impact on value calculations

- Project management

- Agency services

14

‘Best fit' certification methodology

• Based on the location of the building in The Netherlands an EPA-U or BREEAM certificate is advisable

• For international acknowledgement BREEAM or LEED are preferred options

• Research on an other sustainability certificate is possible

The scenario’s contain both an EPA-U (C or A level) and BREEAM certificate

15

Scenario analyses

Scenario Analysis

• Technical analysis

- Implementation possibilities in occupied building

- Implementation of solar cells produced on Eco

Company equipment

• Energy savings

• Financials:

- Investments required

- Tax benefits and subsidies

- Impact on property value

• Certification options

• Implementation time frame

Scenario III: BREEAM (Very) Good

Scenario II: A label

Scenario I: C label

Current situation

16

Scenario I: EPA – U label C

Improve from G label to C label

• Total investment appr. € 350.000,- excl. VAT

• Investment expenses per m² gfa (9.130m²) € 38,50 per m²

• Calculated energy savings approximately € 19.000,- per year and 7,0% CO2 reduction

• Required adjustments:

- Upgrade current climate installation (e.g. heat recovery in airhandling, heat pump, HE-boiler)

- Replace conventional lighting by HF lighting (incl. occupancy detection, daylight compensation)

• Expenses from the current renovation plan include € 115.000,- to replace the current cooling unit and

central heating boiler in the coming 2 years. If scenario I is implemented these expenses are included.

• Therefore the total (additional) investement to improve from G to C label is appr. € 235.000,-

17

Scenario II: EPA – U label A

Improve from G label to A label

• Total investment appr. € 850.000,- excl. VAT

• Investment expenses per m² gfa (9.130m²) € 93,10 per m²

• Calculated energy savings approximately € 39.000,- per year and a 13,7% CO2 reduction


- Upgrade current climate installation (e.g. heat recovery in airhandling, heat pump, HE-boiler)

- Thermal energy storage with a well (a permit is required)

- Replace conventional lighting by HF lighting (incl. occupancy detection, daylight compensation)

- Replace glass external windows

• Expenses from the current renovation plan include € 115.000,- to replace the current cooling unit and

central heating boiler in the coming 2 years. If scenario I is implemented these expenses are included

• Therefore the total (additional) investement to improve from G to C label is appr. € 735.000,-

18

Scenario III: BREEAM (Very) Good

Improve from G label to BREEAM (Very) Good (incl. EPA-U label A)

• Total investment appr. € 1.700.000,- excl. VAT

• Investment expenses per m² gfa (9.130m²) € 186,- per m²

• Calculated energy savings approximately € 39.000,- per year and a 13,7% CO2 reduction


- Energetic adjustments according scenario II

- Several sustainable adjustments like re-use of rainwater, water- and energy (sub)metering, energy & waste management

• Positive area / transport effects:

- Public Transport

- Bicycle shed

- Cycle and pedestrian safety

• BREEAM Very Good is not likely due to presence of tenants during renovation

• Additional expenses compared to scenario II appr. € 90,- per m²

19

Value impact per scenario

Status building G label (current) C label A label BREEAM Good

Required investment € 115.000 € 350.000 € 850.000 € 1.700.000

Write-off installations n/a 20 25 25

Letting potential 9 months 9 months 8 months 7.5 months

Rent value € 320 per m² € 323 per m² € 325 per m² € 328 per m²

Rent growth 2.10% 2.10% 2.20% 2.30%

Yield 6.65% 6.60% 6.50% 6.45%

Average Nett Value € 23.500.000 € 23.700.000 € 24.000.000 € 23.600.000

• Starting point: total leased building for 5 years from now

• Not inlcuded:

- Subsidies

- Energy recovery

COPYRIGHT © JONES LANG LASALLE IP, INC. 2010

Contact: Ronald Bausch

Sustainability Consultant

Strategic Advisory NL

Tel. + 31 (0) 20 5 405 405

Email: [email protected]

Elsbeth Quispel

Head of Sustainability Services

Strategic Advisory NL

Tel. + 31 (0) 20 5 405 405

Email: [email protected]