02 August
Reporter: Theo Andrew

Green real estate to boost portfolio performance

Investors focusing on environmentally friendly assets could achieve returns of up to 65 basis points higher than for non-green buildings, according to LaSalle.

LaSalles's report, ‘Environmental Factors & Real Estate Demand’, states that green buildings hold a lower risk, a higher value, and therefore could significantly improve the financial performance investors portfolios over time.

The research noted that green buildings hold less vacancy risks, are more likely to attract higher credit quality clients and if managed sustainably, will outperform in the long-term.

Factors that help to justify the initial lower returns include cheaper financing, more liquidity and less requirements for re-positioning of the building.

Jacques Gordon, LaSalle’s global head of research and strategy, said: “The rising demand for the sustainability and resilience features of a building is due to both regulatory and market forces.”

According to Mahdi Mokrane, European head of research and strategy at LaSalle, specific market and sector regulations vary greatly from country to country and investors should take note.

Despite investors hesitance towards sacrificing returns for sustainability credentials, a growing number have started to question fund managers and CEOs on their progress towards their sustainability goals, the report said.

Mokrane added: “We expect the demand for environmentally-friendly features to grow rapidly, as both tenant and investor awareness will continue to rise.”

Environmental attributes of green buildings include energy consumption, carbon footprint reduction, water and waste recycling and building ratings that encourage sustainable designs.

“These factors have risen in significance in recent years to the point that they deserve investors‘ full attention alongside other secular trends in real estate”, he added.

“By raising environmental considerations as worthy of close attention, we are suggesting that they will, in time, have the power to drive long-term occupier and investor demand on a vast scale equivalent to the three other secular drivers of real estate demand previously identified by LaSalle: demographics, technology and urbanisation.”

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