London’s greenest office buildings achieve up to 12.3 per cent rental premium

Green buildings

London office buildings that achieve the highest standards in sustainability can achieve up to a 12.3 per cent premium in rents, according to a new analysis from global property advisor Knight Frank.

The study for the first time quantifies how rental performance is impacted by BREEAM-certification, the leading global sustainability assessment method for buildings which is adopted across more than 3,000 buildings in London.
 
According to the analysis, a BREEAM ‘Very Good’ rating, which recognises advanced good practice on issues including energy performance and health and wellbeing, results in a 3.7 per cent rental premium on average.
 
BREAAM ‘Excellent’ results in a 4.7 per cent rental premium whilst an ‘Outstanding’ rating - which is achieved by less than 1 per cent of assessed buildings and recognises the most innovative workplaces - results in a significant 12.3 per cent premium.
 
The analysis has been undertaken using rental data from Q1 2010 to Q1 2021 across 2,700 London assets, with Knight Frank’s methodology comparing buildings on a like-for-like basis according to age, quality, size, submarket location and connectivity to ascertain the rental premium linked specifically to any BREAAM accreditation.
 
Kate Horton, Partner, London Capital Markets at Knight Frank, said: “These results are very compelling from a capital markets standpoint. Identifying a clear rental premium for high-end BREEAM ratings is a big factor for investors who are looking to differentiate their buildings from the rest of the market.
 
“As ESG continues to rise quickly up the agenda for both occupiers and investors, we expect to start seeing a ‘green value premium’ for assets strongly aligned with ESG characteristics.”
 
Victoria Ormond, Partner, Capital Markets Research at Knight Frank, says: “These findings are really significant in establishing, for the first time, how sustainability monetarily adds value, which is vital insight for investors, developers and all market participants. This type of analysis moves the conversation on sustainability on from ‘it’s a nice to have’ to ‘we can quantify this investment’, which will help make it a core part of asset business plans and investment decisions.”
 
Dr Shamir Ghumra, Head of Building Performance Services at BRE, says: “Insights from reports such as Knight Frank’s further highlight the role property investors can play in helping the UK transition to net zero – and how tools like BREEAM can be utilised to help them in their efforts. Using such schemes will be crucial as the country continues with its decarbonisation drive, and insights like today’s will go a long way towards helping the property market make more informed decisions about its investments.”

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