Can BREEAM 'Outstanding' increase your rental premium?

Jun 30

Written By Paul Malone

Written by

Dan Coupland - Graduate Sustainability Consultant

To contact please email: dan.coupland@mainer.co.uk

Can BREEAM ratings and other sustainable certifications influence the rental value of real estate, and if so, how could this effect the needs and demands for future BREEAM assessments?

In 2021, the UK real estate market had a reported turnover of 68.6 billion GBP (Real estate market in the UK - statistics & facts | Statista) with rents slightly increasing due to the COVD-19 pandemic. What this represents is that there is a massive opportunity for sustainable real-estate to take a share out of a massively profitable marketplace.

Sustainability is an ever-growing consideration across many socio-economic sectors, with construction and real-estate a prime influencer of producing assets that will last, whilst also not compromising resources for the future. Whilst there has been an influx of sustainable residential and commercial buildings in the last decade, there seems to be an affinity for growth, especially in the next decade, for sustainable real-estate to become the industry standard.

How does Sustainable Development help in real-estate?

Sustainable development refers to the implementation of environmentally friendly design, construction, materials, technologies and consideration of future use in a buildings design. This reduce homeowner operating costs and embodied carbon levels across the building’s life. This helps to reduces the environmental impacts from construction and improve a buildings carbon footprint (A Guide To Sustainable Real Estate Development | Than Merrill).

Can BREEAM drive sustainability and value?

20% of international carbon emissions comes from real estate. There is a growing link for both developers and homeowners between sustainability and value creation through financial savings or brand reputation and CSR as written by Savills, a UK estate agent.

Real-estate industry is shifting through increased investment across all asset groups rated BREEAM Excellent/Outstanding, with investment into these two BREEAM rating classifications rising sharply in 2020 year-on-year (£17.8bn in 2019 compared to £1.9bn a decade ago). Investors and developers identifying a need to obtain sustainability classifications for planning approval permissions, as well as marketing tools to increase the value of their asset (Savills Blog | How sustainability is influencing the value of real estate). Therefore, the cost of a BREEAM consultation and subsequent rating is potentially insignificant to the increased value that the building will achieve by having the certification.

What the new model specification does is provide a framework that can facilitate permanent work systems in the supply chain that make reuse part and parcel of construction.

Do BREEAM Ratings affect Rental values?

An article by Knight Frank (2021) indicated that in Central London offices there was a correspondence with the rating of BREEAM status achieved and the subsequent rental premium being charged (see drawing). It is clear to see that there is an inherent value in conducting BREEAM assessments ‘Very good’ and above ratings by where asset value is being driven upwards partly due to the environmental credentials of a building.

However, this phenomenon isn’t just located in London. As Faulconbridge et al., (2018) demonstrate, most of these other major cities have also seen an influx of BREEAM rating, albeit not as high as London, but nevertheless still increasing the number of assessments taking place.

Conclusion

There seems to be a growing shift where more sustainable buildings are being built, there is almost an industry expectation that projects achieve at least a very good BREEAM rating. This is not at all surprising when developers can see the added value they can apply to their assets if a BREEAM rating is pursued.

Conversely, since 2018, the UK introduced the Minimum Energy Efficiency Standards (MEES), there is major risk accredited to a project if it cannot obtain an energy performance certificate (EPC), which could result in an unmarketable asset which will depreciate in value (Booker, 2020). Therefore, incorporating a BREEAM assessment and obtaining and EPC is a way to drive the rental value of your asset, whilst also providing future protection.

For homeowners they benefit from reduced building life and energy bills, whilst developers reduce void periods, whilst also increasing the overall value and subsequent rental value of their assets.

This now puts companies that offer BREEAM and other environmental accreditation services in a unique position to capitalise on an influx of projects which will seek to make sure that their development not only adhere to mandatory compliances, but also to a suitable and acceptable environmental standard that BREEAM and others can offer.

If you need to discuss BREEAM with us, please contact us here or visit our BREEAM page here

References

Booker, Y., 2020. Assessing the impact of the intensifying UK minimum energy efficiency standards (MEES) on regional office rental values. International Journal of Urban Sciences, 24(2), pp.152-172.

Faulconbridge, J., Cass, N. and Connaughton, J., 2018. How market standards affect building design: The case of low energy design in commercial offices. Environment and Planning A: Economy and Space, 50(3), pp.627-650.

Hussien, A., Alshamaa, A., Jannat, N., Ali, S.B. and Mushtaha, E., 2021, December. Energy performance labeling: impact on rental values across regional offices within the UK. In 2021 14th International Conference on Developments in eSystems Engineering (DeSE) (pp. 56-62). IEEE. IEEE Xplore Full-Text PDF:

Kuijstermans, C.A.P.M., Schaefer, I.W., van Weenen, I.B. and Boot, I.D., 2011. SUSTAINABILITY–DOES IT INFLUENCE INVESTORS’DECISION? An exploration to BREEAM, as part of a multi-criteria decision analysis. EXPLORING ENERGY NEUTRAL DEVELOPMENT FOR BRAINPORT EINDHOVEN part 2 TU/e 2011/2012, p.77.