REITs Slow To Invest In Green Buildings Despite Stakeholder Pressure
But the pace is picking up as REITs recognize the financial benefits.
Few REITs are investing in green buildings despite stakeholder pressure, according to S&P Global Market Intelligence.
Only 7% of US REITs reported a strong green building investment program, while 20% reported having some kind of program. Another 27% indicated limited activities, while 46% have not disclosed any program at all, a recent article by S&P divulges.
As of October, 17% of US REITs have portfolios where 50% or more of their properties are green. Twenty-five percent have portfolios where at least 25% of properties are considered green, according to Sustainalytics BV, Morningstar’s ESG-focused data company.
Additional cost and resources of green buildings are responsible for the slow uptake, Sustainalytics Associate Director of Insurance, Real Estate and Asset Management Research Sercan Soylu asserts.
“Usually, green buildings are more expensive to acquire because of relatively higher construction costs mainly stemming from sustainable materials. Apart from that, such properties require diligent maintenance and in turn require further costs for material, labor and talent,” Soylu explained to S&P.
However, he said, there has been a greater penetration by green buildings in the portfolios of REITs as real estate companies are increasing their focus on this asset class every year and globally regulators are putting more emphasis on the environment and climate change.
S&P said the increase is also happening as REITs are seeing green property certification benefiting the balance sheet in the long term such as LEED for new and existing buildings.
Cushman & Wakefield and CoStar Group data is showing LEED-certified four- and five-star office properties on the whole command higher rents than non-LEED certified properties and have also reported lower vacancy rates, S&P says.
“Green buildings definitely provide a premium in terms of the price, but also in terms of the yields,” Soylu said.
Green buildings can also pay off in terms of PR. Also, sustainability and environmental improvements can help in leasing space. “Tenants want to be able to demonstrate they’re meeting their ESG goals,” Glenn Brill, a managing director in the real estate solutions practice at business advisory firm FTI Consulting Brill said. Taking space with a controlled carbon footprint counts as efforts the businesses make.