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Insights
“In 2021, people were wondering what BREEAM was. Now it is decisive for the value of the building in a transaction process.” This is stated by Jon H. Dahlberg Årstad, CEO of Newsec Norway.
At Sunday Power's breakfast event, Dalhberg Årstad investigated questions about whether a greener building is more valuable, and shared experiences from how Newsec sees this affecting the final sum in transaction processes. He believes the cost savings of energy initiatives such as solar cells are only a small part of the overall picture. “The reality is that all the forces are going in this direction - the investors, the banks and the tenants. The capital should be turned from brown to green, and the tenant should also report on the CSRD. They also don't want to spend emissions sitting in a small energy-efficient building,” says Dahlberg Årstad.
This affects the price, according to Dalhberg Årstad: “If you are worried that the property may become a stranded asset, you increase the return requirement”.
Survey showed an obvious value impact
Newsec's experience is that it has an obvious value impact that a building is green, but also finds that it has been demanding to answer how much is being talked about in terms of money with today's data.
That's why Newsec recently conducted a survey to prove that green builds are more valuable. A sample of their active investors were asked what they would pay for a tangible property in today's market. Then the assumptions were changed and investors were asked what they would pay if the property had a BREEAM* outstanding. Then the yield **average** went down 20 basis points. Dahlberg Årstad adds that 20 basis points is the average, and the answer is probably closer to 30 than 20 as it is the one who offers the highest price that gets the property.
'We don't have and are unlikely to get precise enough answers on the exact value of being green. We see that there are many factors that make green buildings appear more attractive, and hardly any that make green buildings less attractive. Commercial real estate is rarely traded and there are many factors in a transaction. Through the survey, we were shown the obvious value impact,” says Dahlberg Årstad.
Read also: Solar PV plants gave lower interest rates
Calculation example: For example, with a yield of 6%, 20-30 bp improvement for a green commercial building would amount to an added value of 3.5% - 5%
*BREEAM stands for Building Research Establishment Environmental Assessment Method. BREEAM-NOR is Norway's premier environmental certification system for buildings.
**Yield is a measure of the income a property generates measured against the total cost of the property, or in some cases the market value of the property. Yield is usually calculated annually as a percentage.
