ESG offices priced 25% above non-ESG, study says
The anticipated premium for greener ESG-focused office buildings is already being seen according to a study of US rents and sales pricing over 10 years by Cushman & Wakefield.
C&W used the LEED certification for green credentials as an indicator and determined that there was a noticeable premium for rents and revenue, controlling for quality, age and class of buildings.
Over the past 10 years, LEED-certified office buildings made up 29.7% of total office investment sales in the US, comprising $357.4bn in transactions.
C&W studied the sales price on a per square foot basis for the assets; the different investment yields between LEED-certified and non-LEED-certified product; and fluctuations based on quality class, urban v suburban, and market type.
Keeping quality and class constant, LEED-certified Class A urban office sales generated a 25.3% price per square foot premium over non-certified buildings, while LEED-certified Class A suburban office achieved a 40.9% premium over non-certified assets.
LEED-certified Class B offices achieved the highest premium, 77.5% over its non-certified comparable set. LEED certification compressed cap rates relative to non-certified office by 40 – 80 basis points.
When C&W investigated the fairness of pricing for assets, it determined that LEED-certified Class A suburban properties are undervalued when compared to what a bottoms-up analysis would suggest, using revenues and prevailing cap rates. Class A urban and Class A gateway+ asset values corresponded to the bottoms-up valuation, meaning these assets are neither undervalued nor overvalued.
For the full report go to the Cushman & Wakefield website.