‘Brown discount’ hits building values as green priorities rise
Nearly half of respondents in a global RICS survey reported a reduction in rents or prices in buildings not classed as sustainable.
The second annual RICS Sustainability Report found that about a quarter believe the ‘brown discount’ is up to 10% – with a further fifth believing it is higher.
Surveying 4,000 real estate professionals from around the world, the report suggests that sustainability has moved up the agenda enough to move the needle on property values.
However, the report does not attempt to quantify or calculate the discount: respondents were asked whether they perceive a brown discount. And perceptions varied, with about a fifth seeing neither a brown discount nor a green premium on rents and prices.
Europe takes green lead…
The report found that Europe is well ahead of other parts of the world in the acceleration of demand for sustainable buildings.
The RICS calculates an index score for demand, subtracting the proportion of respondents seeing a fall in demand from the proportion seeing a rise. According to that metric, Europe has a score of +75, compared to a global score of +48.
High demand in Europe could be a result of more aggressive legislation around sustainability. The Energy Performance of Buildings Directive, for example, aims to decarbonise building stock in the EU by 2050.
Investor interest in climate risk assessments has risen accordingly. Globally, 57% believe that interest has gone up either modestly or significantly, rising to three-quarters of respondents in Europe.
… but construction falls behind
Turning to construction, the report found that 72% of respondents do not measure operational carbon across the lifecycle of their projects. Across the Americas, it’s 80%.
Similarly, around half of the industry globally does not measure embodied carbon in its projects. “Where measurement of embodied carbon is occurring, it is having minimal impact on the selection of materials and components,” the report said.
Around a quarter said they would like to measure embodied carbon if a standard approach to measurement existed.
Kisa Zehra, RICS sustainability analyst, said: “Barriers to progress cited in the report have included a lack of established standards, guidance and tools. However, it is equally fair to say that industry must adopt these tools and standards where they are available and should make carbon assessment and management an integral part of business practice.”
What real estate should do
RICS called for the industry to make carbon assessment and management a key part of business “without waiting for government intervention”.
Tools it recommended include the International Cost Management Standard, which combines cost and carbon reporting, and the CRREM project’s decarbonisation pathways.
For embodied carbon, RICS recommended the Built Environment Carbon Database, an initiative it helped launch to help the industry estimate and benchmark its emissions.