Green leases are gaining traction, according to Dale Taysom, chief operating officer at Pramerica, the real estate investment management business of Prudential Financial of the US.
Data collection is key for advancing sustainability, he told PropertyEU. ‘It’s a huge issue. It’s easy to get lost with all the different standards, that’s a challenge and a common issue across the industry. But it’s not really an option not to take part. And if there’s no baseline, it’s very difficult to figure out how you’re doing.’
Once a baseline has been established, the results are not always what investors may be hoping for, he pointed out. ‘When there is a good baseline and energy consumption actually increases, that can be disheartening.’ The problem may have less to do with the actual building, and more with the fact that tenants are not taking the right measures. Moreover, it is often difficult to monitor tenant behaviour. In that sense, green leases under which tenants agree, for example, to implement energy-efficiency measures and avoid the use of products that are harmful to the environment are an outcome which could become more standardised. Taysom: ‘We’re working on it.’
For the moment, green leases tend to be agreed only with new tenants, but overall it is often easier to achieve results with larger occupiers, Taysom said. The company recently carried out a survey among 500 tenants in the US. ‘Size really matters,’ he says. Our response rate was much higher for tenants greater than 25.000 sq ft (2,300 m2).
While there is some anecdotal evidence of higher rents and / or lower cap rates for green buildings, there is more proof that energy savings do generate cost savings, Taysom noted. The company recently completed a two-year pilot programme which led to a 28% fall in energy consumption and a 13% decline in CO2 emissions. ‘We are very encouraged by that pilot project. Energy savings create real value. The savings we generated translated into $55 mln of value gain for just a small part of our portfolio.
The company is now targeting value increases of $100 mln through a sustainable project within the next 12 to 24 months. ‘Buildings that don’t have any sustainability features may face a brown discount. For a certain number of tenants "non sustainable" buildings are not even making the list. That itself is already a huge plus. We like to think we’re ahead of the curve, but we would be well behind if we didn’t do what we’re doing. It matters and we need to think about it every day.’