Is Sustainable Property Investing Worth It?
In the heart of Australia's bustling cities, towering commercial buildings stand as monuments to our nation's progress and prosperity.
However, behind the sleek facades and gleaming glass, a sobering truth lurks – the construction industry is a significant contributor to our country's carbon footprint.
Take, for example, a 20-story, 75-metre-tall commercial building. Its construction likely required a staggering 4,000 tonnes of cement, a process that emitted an estimated 3,100 metric tonnes of carbon into the atmosphere—equivalent to driving a car for nearly 13 million kilometres.
When we multiply this impact across the countless buildings that dot our urban landscapes, the numbers become even more alarming. Together, these structures produce up to 39% of Australia's energy-related carbon emissions. As Australia strives towards its target of net-zero emissions by 2050, sustainability has rightfully become a hot topic for the real estate industry.
With increasing pressure on the property sector to build and operate more sustainably, questions arise regarding the business case for these decisions. As an investor, should you be willing to pay a premium for green features, and what will the payoff be?
Let’s unpack the value and necessity of sustainable property investing through three critical factors that underline its importance.
The Need for Future-Proof Real Estate
As the effects of climate change intensify, experts warn that real estate investments face escalating risks from heat waves, flooding, storms, and droughts. These extreme weather events not only endanger day-to-day operations but also threaten the long-term structural integrity of buildings and property portfolios.
Recent news reports have highlighted the devastating consequences of such climate-related disasters. For instance, the recent Queensland floods resulted in an estimated $2 billion in documented damages to commercial businesses and homes alone.
These events serve as a stark reminder of the financial severity of the climate threat, particularly for a nation like Australia, where 87% of the population resides within 50 kilometres of the coastline, making coastal areas especially vulnerable.
This escalating vulnerability underscores the need for sustainable building practices that not only lower emissions but also make properties more resilient to the impacts of climate change. Sustainable development is a dual strategy – it mitigates the building sector's substantial contribution to climate change while simultaneously fortifying investments against the very threats posed by a changing climate.
By embracing sustainable practices, investors can future-proof their real estate holdings, ensuring they are better equipped to withstand the challenges of extreme weather events and safeguarding the long-term value of their investments.
Rising Demand for Sustainable Buildings
As climate experts predict increasingly wild and unpredictable weather patterns by 2050, the threat posed by extreme weather events to building value and business continuity will become critical. These risks could disrupt operations, increase operating costs, and damage infrastructure, making the need for sustainable, resilient buildings more pressing than ever before.
However, even as the demand for eco-friendly spaces continues to surge, there is a significant supply-demand gap in the Australian market.
According to data from JLL, for every three square metres of green building space requested, there is only one square metre in the pipeline. This scarcity has transformed sustainable buildings into a hot commodity, with investors willing to pay a premium to secure these coveted spaces.
The data speaks for itself – green buildings are fetching prices approximately 12% higher than their conventional counterparts, and rents are up by 5%. Furthermore, each incremental improvement in energy efficiency can boost rents by an average of 4.2%.
This trend is driven by the recognition that sustainable buildings not only contribute to environmental preservation but also offer long-term operational cost savings and resilience against climate-related risks.
As the demand for green spaces continues to outpace supply by up to 70% across Australian cities, investors who prioritise sustainable development will be well-positioned to capitalise on this growing market opportunity.
Stakeholder Pressure and Incentives
The push for sustainable property investing is not solely driven by environmental concerns or market forces; it is also fueled by the growing expectations and demands of stakeholders across various sectors.
According to industry data, a staggering 89% of stakeholders agree that sustainability is crucial to their corporate strategy, and 86% are eager to accelerate sustainability initiatives.
Investors, too, are recognising the value proposition of green strategies. Over 70% believe that such initiatives lead to higher property values, increased demand, and improved tenant retention.
This recognition stems from the tangible benefits that sustainable buildings offer, including lower operating costs, enhanced occupant comfort and productivity, and a reduced environmental footprint.
Moreover, there is a growing appreciation for the brand-enhancing capabilities of sustainability certifications for commercial properties. A remarkable 48% of investors recognise the positive impact that these certifications can have on their brand reputation and public perception.
With stakeholders across the board rallying behind sustainability, the pressure on the real estate industry to embrace eco-friendly practices is mounting. Investors who proactively align their portfolios with these expectations will not only contribute to a greener future but also position themselves as leaders in a rapidly evolving market.
The Way Forward for Investors
Given the critical factors driving sustainable property investing, it is clear that embracing this approach is not only an environmentally responsible choice but also a financially prudent one.
As a commercial buyer's agent, I firmly believe that jumping on the sustainability train is worth it—not just to reduce your carbon footprint but also to make your buildings more resilient and increase the profitability of your investments.
To embark on this journey, the first step is to thoroughly analyse the data and assess how adopting green strategies might impact your finances and investment decisions. This analysis should consider the potential for higher property values, increased demand, and operational cost savings associated with sustainable buildings.
Next, it is essential to embrace better technology and data-driven approaches. While brand-new, eco-friendly buildings are appealing, retrofitting and upgrading existing properties is equally crucial, as the construction of new buildings can contribute significantly to carbon emissions.
Fortunately, initiatives like NAB Green Finance provide "green loans" specifically designed for purchasing and retrofitting existing commercial properties, making sustainable investments more accessible.
It is evident that the global community is committed to a greener future, and the real estate industry is no exception. The question that remains is how quickly stakeholders will embrace this transition. With 96% of leading occupiers planning to prioritise green credentials when buying or using buildings by 2025, sustainable investing is rapidly becoming the norm.
Key Takeaways
Sustainable practices future-proof investments against climate risks.
Green buildings command premium prices and rents due to supply-demand gap.
Stakeholders increasingly prioritise sustainability for corporate goals.
Retrofitting existing buildings is key to reducing emissions.
Sustainable investing will be the norm by 2025 - adapt or risk being left behind.
If you are ready to embark on this journey and unlock the potential of sustainable property investing, I encourage you to reach out. Together, we can explore opportunities that align with your financial goals while contributing to a more sustainable future for our communities and our planet.
Remember, the question is not whether sustainable property investing is worth it; the data and market trends have made a compelling case.
The real question is how quickly we can collectively embrace this paradigm shift and shape a more resilient, eco-friendly, and prosperous future for generations to come.