Among property owners, at this point, there are few things more relevant than the environmental certification of buildings. That’s where we can help!
In the following article, we explore guiding stars and opportunities in environmental certification and what it means for today’s real estate companies. Today, many property owners focus on certifying their holdings. But what is a certification worth? In addition to acting as a receipt for being a sustainable property, how can a certification affect rental levels?
BREEAM and LEED
These certifications guide and enable property owners to confirm their buildings’ sustainability, particularly important for new properties. The system assesses sustainability performance and measures buildings worldwide based on various aspects of innovating, evaluating, and developing sustainability. Certification is done in existing real estate portfolios as well as new production. Certifications have become a hygiene factor for new properties and many property owners.
Rental premium on environmentally certified buildings
No one can oppose the great benefit of focusing on sustainability and environmentally certified properties. It will be an important benefit for the climate, while in many cases it will have a positive effect on the companies’ financial results in the form of increased property value, lower energy costs and improved attractiveness.
A recently published report from KTH Royal Institute of Technology highlights a previously unexplored upside of environmental certifications—namely, that they can lead to a clear rental premium. In other words, they directly increase the income of the property owners, who in turn provide an upside on, e.g., operating and property value.
The report has focused on office buildings in Sweden’s four largest cities: Stockholm, Gothenburg, Malmö, and Uppsala. The input has been to investigate whether the rent level for environmentally certified properties in these locations is different from that for properties that are not certified and whether there is any difference between the different types of certification.
The results show that there is a clear rental premium and that there is a difference between different certifications. In general, a premium of 4.9 to 5.4 percent is shown for leases in environmentally certified buildings compared with contracts in nearby houses that do not have any certification. The analysis further indicates that BREEAM gives the highest premium, followed by LEED.
This will be an important insight for the real estate companies in their persistent work to environmentally certify their portfolio. Without it, it can be difficult to motivate and create additional incentives to allocate resources and work hard on the issue.
Climate benefit and economic gain in a perfect mix – something very attractive for a property owner in today’s tough competition for future tenants!
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