The latest ‘MSCI South Africa Green Annual Property Index’ – now in its third year – has shown the association between quality and green certified buildings, as reflected by a higher capital value per square metre, more resilient capital growth and slightly lower income returns, compared with that of noncertified office buildings.
However, the results of the index, which were released in conjunction with the Green Building Council South Africa (GBCSA), indicated that the returns of certified and noncertified buildings were relatively similar, with only a 0.2% premium spread in favour of noncertified buildings over the period measured.
The index measured investment returns for 317 Prime and A-Grade offices with a capital value of R54.5-billion, and compared the returns of 96 Green certified buildings with a capital value of R21.8-billion to the returns of 221 noncertified constituents.
MSCI executive director Phil Barttram on Thursday said the similar returns between certified and noncertified buildings could indicate that the adoption of green principles was now a matter of course across higher-quality offices, regardless of certification.
However, he emphasised that a deeper analysis of the fundamentals over the three-year period measured reinforced the argument that green certified offices provided a lower-risk investment, particularly during the down phase of the cycle, as reflected by their lower discount rates, markedly lower vacancies and higher net incomes per square meter.
Findings from the analysis showed that capital expenditure stood at 0.7% of capital value for Green Star certified buildings, versus 1.1% for uncertified buildings.
This indicates that green certified buildings have required comparatively less capital expenditure, which has enhanced capital growth relative to the non-green buildings.
Moreover, while net income growth for 2018, at 2.4%, was on par for certified and uncertified buildings, the net income from green certified buildings outperformed that of uncertified buildings by 16.5% per square metre a month.
On a three-year basis, the green certified office sample has delivered a net income growth outperformance of 80 basis points compounded yearly.
Additionally, the Green Star Certified Prime and A-Grade office sample managed to recover 119.5% of its electricity expense versus the 104.9% recovered for the non-certified sample.
For the three-year period, the green certified office sample delivered a yearly compound total return of 10.3% versus the 7.2% of the non-certified sample.
Green Star certified office buildings also delivered an inflation-beating total return of 7.6% in the same period.