SA’s green-certified premium (P) and A-grade office blocks — considered top drawer — recorded a total return of 6.1% in 2022 — 50 basis points above the return on their noncertified counterparts.
According to the MSCI SA Green Annual Property Index 2022, since launching in 2016, the sample of green-certified offices outperformed the noncertified sample by a cumulative 20.9%.
The sample comprised 303 prime and A-grade office properties valued at R58.2bn, of which 164 were green-certified buildings, compared to 112 noncertified offices of a similar quality.
Released annually in conjunction with the Green Building Council of SA (GBCSA) and sponsored by Growthpoint Properties, the index provides an independent, globally consistent view on the investment performance of the two building types.
“Green-certified offices provided higher returns with better maintained cost to income ratio in 2022,” said Eileen Andrew, vice-president for real estate client coverage at MSCI.
However, P-and A-grade green certified buildings recorded 17% vacancies compared with 13.1% for noncertified buildings in 2022.
Andrew said this increase is a function of the sample, adding that there are far more certified than noncertified offices which means tenants are spoiled for choice with vacancies as they stand, given the poor macroeconomic situation.
In 2022 the green-certified office sample’s gross cost-to-income ratio was 39.7% compared to 43% of the noncertified subset. As a result, green offices had higher forward income growth, which is also likely to happen at a faster pace.
Andrew said assets that are not green-certified will be discounted in terms of value and risk premium because of the capital effort that will be required to bring them up to standard.
Lower vacancies
Over the seven-year period measured by the index, green-certified offices had lower vacancies and higher net operating income growth, indicating the premium blue-chip occupiers are placing on green office space.
Additionally, the index shows that green-certified offices boasted significantly lower electricity usage per square metre (-4.5%) and water (-14.3%) when compared to noncertified ones.
“In the current market where rentals are difficult to increase, managing costs is more important than ever, especially water and electricity, so efficiency is paramount,” said Andrew.
CEO of GBCSA Lisa Reynolds said green buildings always made business sense due to the saving on utility bills. The index has added risk into the conversations — that of climate change, lack of resource security, and stranded assets.
“Certified green buildings play a huge role in mitigating these risks,” said Reynolds.
Growthpoint Properties, a leader in commercial green developments, owner and manager of the biggest portfolio of green-certified buildings in Africa, said their green offices have more uptake, which bodes well for the company.
At the end of the 2022 financial year in June, Growthpoint had 86P- and A-grade premises with Green Star Certification.
Head of sustainability and utilities at Growthpoint Grahame Cruickshanks said across the entire group portfolio, not just offices, there had been a reduction in energy consumption in this financial year over the previous two.
Cruickshanks said in addition to the financial, operational and risk-mitigating advantages demonstrated by the MSCI index, green buildings are essential for property owners and tenants to meet their environmental, social and governance (ESG) commitments.
“For businesses with ESG compliance criteria, a green building certification is a good fit, as these two drivers ensure that Green Star certified office buildings are better quality assets,” said Cruickshanks.
Cruickshanks said escalating utility pricing drives energy efficiency measures and rooftop or other on-site renewable energy installations, adding that Growthpoint remains committed to further investments to future-proof its buildings.
Paul Kollenberg, head of asset management for the office portfolio at Growthpoint said with increasing total cost of occupation and rising utility costs, it makes sense for tenants to occupy green efficient buildings as they reflect lower power and water costs.
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