As firms focus on ESG, landlords behind greenest London offices could see higher rents

·2-min read
A number of London firms are looking at their ESG credentials  (AFP via Getty Images)
A number of London firms are looking at their ESG credentials (AFP via Getty Images)

Many investors are increasingly looking at their environmental, social and governance credentials, and that has in some cases boosted demand for more ‘green’ office space.

According to new research from property agent Knight Frank, London office buildings that achieve the highest standards in sustainability can achieve up to a 12.3% premium in rents.

The firm looked at how rental performance is impacted by BREEAM-certification, the global sustainability assessment method for buildings which is adopted across more than 3,000 sites in the capital.

It found that a BREEAM ‘very good’ rating, which acknowledges advanced good practice on issues such as energy performance and health and wellbeing, results in a 3.7% rental premium on average.

‘Excellent’ results in a 4.7% rental premium, and an ‘outstanding’ mark, which is achieved by less than 1% of assessed buildings, results in a significant 12.3% premium.

A number of property investors and developers have committed to new office schemes recently, betting that occupier demand will be high for the most modern and environmentally-friendly sites.

Landlords sitting on older stock, where desk areas are more cramped, could lose tenants to some of the newer properties, some in the commercial property sector think.

Numerous employers are looking at post-pandemic office plans after more than a year of working from home in some cases. Some are looking to reduce space, and many plan to offer a mix of home and office hours.

Knight Frank’s study looked at rental data from Q1 2010 to Q1 2021 across 2,700 London assets.

Kate Horton, partner in the London capital markets team at Knight Frank, said: “Identifying a clear rental premium for high-end BREEAM ratings is a big factor for investors who are looking to differentiate their buildings from the rest of the market.”

The firm’s Victoria Ormond said: “This type of analysis moves the conversation on sustainability on from ‘it’s a nice to have’ to ‘we can quantify this investment’, which will help make it a core part of asset business plans and investment decisions.”

A new office scheme is planned by Barings and a developer (Barings)
A new office scheme is planned by Barings and a developer (Barings)

Last month Barings, a real investment manager which operates out of the US, Europe and Asia, said it had teamed up with London-based property developer LBS to pay £43.3 million for a South Bank site.

There is scope there for around 150,000 square feet of new office space that the pair said will be built to the highest sustainability standards with the target of creating a net zero carbon building.

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