ESG
Sustainability is now at the core of business decision making across most sectors.
Environmental, Social and Governance (ESG) standards are now one of the core drivers of how real estate is designed and valued.
As Asset Managers, we must have an in-depth understanding of how the market views sustainability metrics, in order to advise landlords on how to effectively introduce these into an asset’s business plan.
Historically, our main priority has been: Increasing rents, reducing void periods, and ultimately driving value. Whilst our core objective has not changed, the way it is achieved has shifted.
For some of our clients, a tenant’s ESG impact is just as important as the rental income, providing a broader range of factors to consider when looking for potential occupiers.
Tenants are now looking for much more than just a space to work in. A new office is an opportunity to create an enticing experience for staff, who now have the ability to work from home, so the perfect workspace needs to incorporate wellbeing amenities.
Environmental
Almost 40% of all greenhouse gas emissions relate to buildings.
Carbon reduction may not initially generate higher returns for landlords; however, it will certainly preserve asset liquidity as well as value.
All occupiers have their own ESG targets however, this is essential for tenants as this is the only impact they can have on their carbon footprint.
Based on the latest information on the EPC ratings of currently available office stock across London, we can conclude that approximately 80% of London’s office space will not be EPC compliant by 2030 (requiring an EPC rating of A or B).
Bringing office space in line with UK Government guidelines is one thing but as Asset Managers, we can help assess how that fits in with occupiers’ broader financial and social requirements, as well as the asset's wider strategy and priorities.
Social
The financial benefits of owning environmentally sustainable assets are clear, with increased rental premiums, lower tenancy void periods and lower operating costs throughout the lifecycle of the building.
However, energy efficiency on its own may not be enough to achieve all these objectives as the social/ lifestyle factor grows in importance.
Performance Ratings such as WELL, LEED and WIRED provide different tools showing the wider social benefits of an asset.
The provision of end-of trip facilities, communal break-out spaces, better air ventilation and filtration systems as well as gyms are becoming essential as buildings are no longer solely ‘work’ environments, but also social ones
Governance
Energy efficiency and state-of-the-art amenities can certainly increase a property’s appeal, but there’s more to ESG than that...
Landlords and occupiers have begun to focus on ensuring an asset has the right mix of tenants as well as providing a firm code of ethics and transparency.
Poor governance can lead to corporate incidents, such as Volkswagen’s emissions scandal, which caused significant financial and reputational damage – the latter being harder to quantify.
As Asset Managers, it is our role to ensure that good governance is maintained throughout the asset by appointing the good Managing Agents, ensuring continuous reporting and long-term business planning for the asset.
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