The MSCI South Africa Green Annual Property Index shows that, for the year ended December 31, 2019, the green-certified office sample delivered a return of 7.6% versus the 5.1% of the noncertified sample.
Now in its fourth year, the index provides an independent and consistent comparative return on investment for green-certified and non-certified offices.
Released in conjunction with member-based organisation, the Green Building Council South Africa (GBCSA), and sponsored by Growthpoint Properties, the index measures investment returns for a total of 293 prime and A-grade offices (R54.5-billion capital value).
It also compares the returns of 105 green-certified buildings (R26.9-billion capital value) to the returns of 188 non-certified constituents.
“The findings of the MSCI Green Property Index for Offices strongly support Growthpoint’s long-term office investment strategy.
"We believe that the design and operation of buildings with a focus on occupant health and wellbeing will come into even sharper focus, and the index is proof that green buildings that prioritise health factors such as good ventilation and air quality are extremely well-positioned to retain and attract tenants now and in the future,” says Growthpoint Asset Management: Office head Paul Kollenberg.
Capital growth was the main driver of this outperformance as the green-certified sample held its value in a challenging operating environment for the office market.
While the green certified sample delivered a capital growth of -0.8%, the non-certified sample achieved capital growth of -3.3%.
The superior capital growth was the result of a better net income growth and a lower discount rate – meaning that valuers view green-certified office properties as a lower risk investment, notes the GBCSA.
It says that, also telling, was a significantly lower vacancy rate of 8% versus the non-green sample vacancy rate of 11.5%, highlighting the value occupiers are attaching to green-certified premises.
Released by MSCI in June, the index results reinforces the association between quality and green-certified buildings, as reflected by a 34% higher capital value per square metre, more resilient capital growth and a higher net operating income per square metre compared to the non-certified office buildings, posits GBCSA.
“The latest SA Green Property Index results add to the growing body of evidence regarding the benefits of sustainable investing. It has been encouraging to see how green certified buildings have outperformed on the key investment metrics of occupancy, net operating income and operating cost ratios, highlighting these asset’s defensiveness during tough times.
Further, it has been interesting to note the discount and cap rate spreads between green certified and non-certified assets, perhaps showing that valuers are adjusting their relative long-term risk assumptions for green certified buildings,” says MSCI South Africa client coverage VP Eileen Andrew.
Findings from the analysis showed that capital expenditure stood at 0.7% of the capital value for Green Star-certified buildings, versus 1.2% of the capital value for uncertified buildings. This means that green-certified buildings required comparatively less capital expenditure, which has enhanced its capital growth relative to the non-green sample.
“It is encouraging to see that yet again, the researched evidence shows that certified green buildings are a worthwhile investment. We expect that the value of certified green buildings will become even more pronounced as we navigate through the current challenges presented by Covid-19.
"With the greater focus on healthier environments, green buildings become even more attractive as they have always concentrated on the health and wellbeing of tenants, as well as operating cost efficiencies,” says GBCSA technical head Georgina Smit.
She adds that the GBCSA has initiated globally leading independent research on the financial impacts of green buildings. The results from this year’s MSCI Green Property Index are particularly significant from a capital investment perspective, given the Covid-19-related impact on the property sector.