Asia Pacific investors and occupiers are prepared to pay more for green buildings, but not much, CBRE research suggests.
The broker collated responses from a number of recent surveys into a new report titled: The Green Building Premium: Does It Exist?
The report says: “While the precise magnitude of this premium remains difficult to quantify, and its extent varies across different markets, CBRE data suggest that a small number of occupiers would be willing to pay slightly higher rents for space in a green building, while a sizable number of investors would be willing to pay a marginal premium to purchase a green building.”
While more and more Grade A office buildings are gaining sustainability certifications, they tend to be concentrated in a small number of markets. Only in Australia’s largest office markets, Tokyo, Osaka and Singapore, does more than half the Grade A office stock have green certification.
CBRE’s 2023 Asia Pacific Investor Intentions Survey found a split between 58% of respondents – mainly private equity real estate funds and real estate investment trusts (REITs) – continued to factor ESG into decision-making while 42% - mainly developers – planned to delay ESG measures in the belief that the payback for any investment would take too long under current market circumstances.
The more negative respondents included 15% who planned to delay ESG initiatives, 15% who were reconsidering their ESG policies in the light of an uncertain market and 12% who have no plans to adopt ESG measures in the medium term.
Asia Pacific occupiers were also lukewarm on ESG initiatives. A CBRE survey last year found that only 9% were willing to relocate to ESG-compliant buildings at a higher rent. However, they were also insistent on paying a lower rent for buildings without ESG certification. CBRE suggests this ‘brown discount’ is up to 5%.
CBRE research found the rental premium for green buildings to be greater in markets where are rarer. For example in Shenzhen, where only 22% of Grade A stock is green, the premium is 22%. In Hong Kong, with 48% green buildings, the premium is only 6%.
The Investor Intentions Survey found 70% of investors prepared to pay a premium for a green certified property. However, most of those were only prepared to pay a premium of less than 5%.
The commitment of institutional investors in alternative assets has plateaued, according to Preqin's latest investor survey.
The Preqin Investor Outlook: Alternative Investments H1 2022 report, based on a survey carried out in November last year, shows around a third of investors have no plans to introduce an active ESG policy in the next 12 months. However, more than half already have a policy in place for real estate or intend to introduce one.
However, 35% of investors in alternative assets consider ESG issues to be of extreme or considerable importance in investment decisions, compared with 28% who believe they are of low or no importance. Opinion was split on whether ESG-focused funds perform better or worse, with more than half saying there was no difference in performance.
Lack of data, knowledge about ESG and the inability to integrate ESG data with quantitative models were amongst the reasons cited for why ESG was not a consideration in investment decisions. However lack of demand and lack of value added by ESG were also cited.