During the past 10-15 years almost all newly built commercial buildings in Sweden have been certified. Today there are a lot of different environmental certifications, Green Building, Leed, Bream etc. The different certifications have different requirements, everything from low energy use in each building to the requirements of both building materials for the manufactures and transport. Some certifications also require that the building is positioned in a way that the staff can commute easily using public transportation, and thereby limiting their impact on the environment.
What affects the value of a property? It is the cash flow that the property generates to its shareholders, return on invested capital, that primarily determines the value of a property. Those who generate these revenues are obviously tenants. How do the tenants look upon certification? Some large international companies have a well established environmental profile, which means that they do not accept to rent premises in buildings that are not certified. This far these companies represent a small part of the total rental market. But many smaller companies have environmental issues high on the agenda when they are looking for new premises. Unfortunately at the end of the day the environmental aspects often have a minor impact on the choice. Often the design of the premises. location and cost requirements will ultimately determine which premises you rent.
Regarding the investors (potential buyers of real estate) it is the assessment of both future revenues and expenses that is of utmost importance. The fact that the vacancy level might be lower in a certified building is therefore positive in the eyes of the investors, but we have this far not seen any big differences in rent level between comparable premises with or without certification.
Concerning the costs it is positive if materials are durable and maintenance costs therefore are lower compared to buildings built with standard materials. New, advanced techniques for heating and cooling need more specialized property caretakers and there is an uncertainty about the lifetime of the installations and what costs that might occur in the future.
The speed of change and limited data on the actual market performance of certified buildings is making it difficult for professional analysts to reflect on this market advantage, since they rely on tangible evidence from sales and / or leasing from multiple properties. There are several papers that have been written about the observed differences in pricing between certified and non certified buildings and there is an observed difference in favor for of the certified buildings, but we have to taken into account that nearly all newly built buildings are certified today. What would be interesting is to compare old, renovated buildings with and without certification.
Having reflected on commercial properties, let us not forget about all residential buildings. A cost cut on heating, electricity etc would of course have a positive impact on the market value.
In Australia the environmental certification system is of importance regarding the taxation. Basically it means that the higher requirements that are achieved, the lower taxation. This has led to a relatively large difference in market value between certified and not certified buildings. This clearly shows the importance of politicians taking these issues seriously and a will to put these questions high on the agenda.
The conclusion up until today is that certified buildings enjoy a market advantage over non-certified buildings. This advantage is being felt through lower building and operating costs, ease of sale and rent and improved occupancy rates. Investors, developers and evaluators all believe that this advantage will increase year by year.