Released in conjunction with the Green Building Council South Africa (GBCSA) and sponsored by Growthpoint Properties, the MSCI South Africa Green Annual Property Index measures investment returns for a total of 293 prime and A grade offices (R54.5 billion capital value), and compares the returns of 105 green-certified buildings (R26.9 billion capital value) to the returns of the remaining 188 non-certified constituents.
For the year ended December 2019, the green-certified office sample delivered a total return of 7.6% versus the 5.1% of the non-certified sample.
“The findings of the MSCI Green Property Index for Offices strongly support Growthpoint’s long-term office investment strategy,” says Paul Kollenberg, Growthpoint’s Head of Asset Management: Office. “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,” he adds.
What drove the outperformance of green certified offices?
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 saw capital growth slow to -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. Also telling was a significantly lower vacancy rate of 8.0% versus the non-green sample vacancy rate of 11.5% highlighting the value occupiers are attaching to green certified premises.
The meaning behind these results
Released by MSCI in June 2020, the index results reinforced 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.
“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. Furthermore, 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 Eileen Andrew, Vice President: Client Coverage at MSCI South Africa.
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 health as wellbeing of tenants, as well as operating cost efficiencies,” says Georgina Smit, GBCSA Head of Technical. 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.
Growthpoint is invested in real estate and communities across South Africa and internationally and is an established leader in commercial green developments. Growthpoint provides spaces that work best for its clients by owning and managing the biggest portfolio of green-certified buildings in Africa and the results of the MSCI Green Property Index for Offices demonstrate the real rewards of doing this.
“Growthpoint creates space to thrive with innovative and sustainable property solutions in our portfolio of highly efficient office buildings, which support a lower cost of occupancy for clients, a lighter impact on the environment and rewarding returns for investors,” concludes Kollenberg.
In a nutshell:
Comparison of Green Star Certified Buildings vs Non-Certified Buildings
|Capital expenditure vs Capital value||0.7%||1.2%|