How can we define the green value of a building ?

Green value has emerged as a promising notion in the beginning of the 2000’s. The primary definition consists of a premium observed on the selling price of a sustainable asset compared to other assets located in the same area. However other parameters can influence this green value as well.


Tenant occupancy can be considered a prerequisite of its value

Through the lifetime of a building, vacancy may occur from time to time. However, tenant occupancy really is a keystone of a building’s value. To put it more clearly: a building only has value if it is used!

This is the reason why occupancy features are integrated as key parameters of the value. For instance, headline rents signed between tenant and owner is a good indicator, as well as the rental liquidity of the asset or the amounts of free rent or turnkey solutions that can be agreed between the parties.

According to a study conducted by JLL in the UK during spring 2021, rental values have been observed to be around 8% higher on assets certified at BREEAM very good level minimum compared to non-certified assets. Moreover, vacancy rate on these assets seen by the market as sustainable – that is certified as outstanding or excellent – amounted to 7% to be compared to an average vacancy rate of c. 20% on non-certified assets or certified assets reaching a lower level on the same location.

Therefore, when the market takes into account certain levels of certifications to evaluate the high standards on buildings, occupancy improves. Data also show that the financial quality and solvability of the tenants attracted to these “green” buildings also improve.


Green premium or brown down discount: evolution of market standards

The upcoming environmental requirements set up new market standards, and define the new features of the buildings that are seen as « green ». In this context, one can wonder whether the green value will take the form of a green premium for very sustainable assets or merely consist of hedging a value whilst the other assets will face brown discounts on price.

In France, it is still too early to decide what is more likely to happen. First, the investment volume has not yet got back to its pre-COVID levels. Moreover, 2022 last quarter’s investment level has sharply decreased compared to 2021: investors as well as financers are clearly waiting to see how the economic situation (with inflationary trend and energy contraction in volume and rise in cost) will evolve. According to the figures reported by CBRE on investment figures for the Q4, investment volume has plummeted by 52% compared to 2021 – already a difficult year!

Furthermore, transactions mainly focus on assets with good ESG features that remain attractive for the investors. Experts do agree that in order to be considered prime, sustainable features are a prerequisite for buildings. Indeed, for instance sustainable office buildings – particularly when there are no works to be carried out in the coming years – should benefit from a far better liquidity.


How to deal with the impacts of physical risks on buildings’ value ?

The Four Twenty Seven – a Californian firm that focuses on climate hazard risk estimate – have highlighted the following figures: 19% of selling areas and 16% of office spaces in Europe are exposed to flood or submersion risks. These levels are in line with the IPCC report published in August 2021. In this document, the climate experts warn that the frequency of extreme events and associated climate hazards are expected to rise significantly. Sadly, illustrations of this have been seen when deadly floods have occurred in Germany and Belgium during summer 2021.

Consequently, real estate actors and investors will have to anticipate these risks and improve the risk modeling they use. However a study from the UNEP FI – August 2021 – still tempers the impact that extreme climatic events may have on property values. In their results, the authors show that prices of properties hit by a climate hazard (such as hurricane, fires, floods etc.) are corrected on average for 3 years: after this surprisingly short period of time, prices return to their previous levels!


Green value theoretically depends on several factors. However, it is still difficult to observe it on real markets, partly because vendors of less good assets tend to delay the sale, partly because taking into account the physical risks on buildings at the adequate cost remains a challenge for all actors. On this matter, binding regulations for the long term may be a part of the solution in order to accompany the sector and face the challenge of building stock resilience.



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