The Morgan Stanley Capital International (MSCI) South Africa Green Annual Property Index, now in its fifth year, continues to support the investment case for green buildings in the commercial property sector.
Released yearly in conjunction with the Green Building Council of South Africa (GBCSA) and sponsored by property management company Growthpoint Properties, the index provides an independent, globally consistent view on the investment performance of green-certified and noncertified offices.
At the end of 2020, the index sample comprised 289 prime and A-grade office properties valued at R54.5-billion. The sample included 139 green-certified buildings and 150 noncertified buildings of a similar quality.
“Growthpoint is proud to sponsor the MSCI Green Property Index for Offices for the fifth year. Its insights have never been more relevant than in today’s market. The index’s findings continue to strongly support the case for investing in green-certified buildings,” says Growthpoint asset management office head Paul Kollenberg.
He adds that the MSCI Green Property Index for Offices “demonstrates the real rewards of investing in green certified buildings and provides proof that these buildings are better placed to retain and attract tenants and are cheaper to operate”.
As the owner of the biggest portfolio of green-certified office buildings in Africa, this puts Growthpoint in a strong position for the future, Kollenberg notes, reiterating the company’s commitment to providing workspaces that positively impact on business and the environment, as well as the physical and mental wellbeing of the people who occupy them.
For the year ended December 2020, the green-certified office sample delivered a total return of -1.6%, 170 basis points (bps) above the noncertified sample’s return of -3.1%. Capital growth was the main driver of outperformance as the green-certified sample held its value better in a challenging operating environment for the office market, the index notes.
Over the index’s five-year history, the sample of green-certified offices delivered an annualised outperformance of 260 bps as its compound yearly total return of 7.3% exceeded the 4.7% of noncertified prime and A-grade offices.
On a cumulative basis, this equates to a total return of 42.1% as it outperformed the noncertified sample by 13.2%.
Further, as the Covid-19 pandemic stressed property fundamentals, green-certified offices proved more defensive, both from an income and capital perspective as its superior capital growth was the result of a better net income growth and lower discount rate.
Amid the impact of the pandemic, the green-certified office sample saw a significantly smaller decline in net operating income when compared with noncertified offices (-5.8% versus -10.1%) and had a 40 bp lower discount rate when compared to the noncertified sample, implying that its future cashflows were deemed lower risk.
Also telling was a lower vacancy rate of 12.7% versus the non-green sample of 14.9%, highlighting the value occupiers are attaching to green certified premises, the index notes.
Released by MSCI in April, the index results reinforced the association between quality and green-certified buildings, as reflected by a 31% higher capital value per square metre, more resilient capital growth and a higher net operating income per square meter compared to the noncertified office buildings.
“It is wonderful to see that after five years of tracking green-certified buildings, we can see real evidence showing that they provide higher returns to the investor because they have been more defensive through the economic downturn and the Covid-19 crisis.
“Primary metrics like higher net income and lower vacancy point directly to desirability of these buildings by tenants,” says MSCI VP Eileen Andrew, who adds that this translated into better capital growth over the last five years.
GBCSA technical head Georgina Smit echoes this sentiment, adding that the results also emphasise the positive role that certified buildings can play within the broader responsible investing context.
“For investors, these results indicate that certified green buildings are attractive investment options as well as ensuring future climate resilience and delivering on mitigation interventions associated with green building design and operation.”