Green-certified prime & A-grade offices produced a total return of 5.8% last year, 150bps above that of non-certified office assets of a similar quality during the year.
This is according to the MSCI South Africa Green Annual Property Index for 2023, which is conducted in conjunction with the Green Building Council of South Africa (GBCSA), measures the investment performance of green-certified and non-certified offices globally.
Since the index’s inception in 2016, the sample of green-certified offices outperformed the non-certified sample by a cumulative 24%.
Grahame Cruickshanks, sponsor Growthpoint Properties’ head of Sustainability and Utilities, says, “We benefit from the comprehensive ESG and financial advantages of green-certified office buildings. The data provided by MSCI and GBCSA empowers us to proactively maximise our certification benefits by benchmarking the buildings in our portfolio, improving performance to reduce operational costs, maintaining and enhancing green certifications, and charting our progress towards more ambitious goals such as Net Zero.”
Eileen Andrew from MSCI, adds, “Measuring climate risk in a quantifiable way is moving to the top of the agenda. We have to measure it, show that we are managing it and then rubber stamp it with credible accreditations. This index goes a long way in doing this,”.
The index sample comprised 258 prime and A-grade office properties valued at R54.2 billion of which 163 were green-certified buildings. These were compared to 95 non-certified offices of a similar quality along several key performance metrics.
The increase in total return was driven by a higher capital growth on the back of superior net income growth and a lower discount rate – meaning that valuers view green-certified office properties as a lower-risk investment.
Despite higher interest rates, the discount rate of green-certified offices was unchanged in 2023 while that of the non-certified subset increased by 130bps which implies that valuers deemed that green offices’ future cashflows were both lower risk and more likely to grow at a faster rate.
Green offices’ net operating income was also 30% higher per square metre compared to non-certified office buildings.
Paul Kollenberg, Growthpoint head of Asset Management: Offices, notes, “As tenants increasingly consider their ‘total cost of occupation’ and utility prices continue to rise, leasing space in an energy-efficient green building becomes the sensible choice. Additionally, the cost of supplying backup power to these properties is lower due to their reduced consumption.”
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