London office buildings that achieve the highest standards in sustainability can achieve up to a 12.3% premium in rents, new research shows.
Fresh analysis from Knight Frank shows how rental performance is impacted by BREEAM-certification, a global sustainability assessment method for buildings which is adopted across more than 3,000 buildings in the capital.
The study found that a BREEAM ‘Very Good’ rating, which recognises advanced good practice on issues including energy performance and health and wellbeing, results in a 3.7% rental premium on average.
BREAAM ‘Excellent’ results in a 4.7% rental premium whilst an ‘Outstanding’ rating – which is achieved by less than 1% of assessed buildings and recognises the most innovative workplaces – results in a significant 12.3% premium.
Kate Horton, partner, London Capital Markets at Knight Frank, said: “These results are very compelling from a capital markets standpoint. Identifying a clear rental premium for high-end BREEAM ratings is a big factor for investors who are looking to differentiate their buildings from the rest of the market.
“As ESG continues to rise quickly up the agenda for both occupiers and investors, we expect to start seeing a ‘green value premium’ for assets strongly aligned with ESG characteristics.”
The analysis has been undertaken using rental data from Q1 2010 to Q1 2021 across 2,700 London assets, with Knight Frank’s methodology comparing buildings on a like-for-like basis according to age, quality, size, submarket location and connectivity to ascertain the rental premium linked specifically to any BREAAM accreditation.
Victoria Ormond, partner, capital markets research at Knight Frank, commented: “These findings are really significant in establishing, for the first time, how sustainability monetarily adds value, which is vital insight for investors, developers and all market participants. This type of analysis moves the conversation on sustainability on from ‘it’s a nice to have’ to ‘we can quantify this investment’, which will help make it a core part of asset business plans and investment decisions.”
Dr Shamir Ghumra, head of building performance services at BRE, added: “Insights from reports such as Knight Frank’s further highlight the role property investors can play in helping the UK transition to net zero – and how tools like BREEAM can be utilised to help them in their efforts. Using such schemes will be crucial as the country continues with its decarbonisation drive, and insights like today’s will go a long way towards helping the property market make more informed decisions about its investments.”