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Green Property Index: green buildings outperforming market

By Cameron Jewell

20 February 2014 — The latest Australia Green Property Index has found that green office buildings continue to outperform the general market on investment return, net operating income, capital expenditure, vacancy rates and weighted average lease expiry.
The index, produced by IPD, tracks the investment performance of commercial office buildings with Green Star and NABERS Energy ratings, and as of December 2013 represented $58 billion of office assets.

The latest results showed that Green Star (Design and As Built) rated offices across Australia delivered an average total annualised return of 10.3 per cent to December 2013, outperforming the general market by 60 basis points.

In the CBD market, the returns were marginally smaller, with Green Star-rated offices producing a total annualised return of 10.0 per cent, 30 bps higher than the overall CBD office market.

High NABERS-rated properties (4-6 star) also delivered significantly stronger investment returns. Like Green Star-rated offices, there was a 10.3 per cent return, but this was notably higher than the 7.8 per cent return of low NABERS-rated properties (0-3.5 star), or 250 bps.

In CBD office assets, high NABERS Energy ratings delivered even stronger investment returns (10.5 per cent) than assets with low NABERS Energy ratings (7.4 per cent) and the broader CBD office market (9.7 per cent), on an annualised basis. The outperformance of high NABERS Energy rated assets was consistent across Sydney, Melbourne, Brisbane and Canberra CBD markets.

It wasn’t just higher returns Green Star and NABERS-rated buildings were enjoying, IPD executive director, Australia and New Zealand Anthony De Francesco said.

“In addition to higher returns, these buildings also enjoy higher net operation income, lower CAPEX, lower vacancy and longer weighted average lease expiry than other office assets,” Mr De Francesco said.

Annual net operating income was higher for Green Star ($505.5 a square metre) and high NABERS ($503 a sq m) offices than the general market ($426 a sq m).

Annual CAPEX was lower at $65.5 a sq m for Green Star offices and $91.6 a sq m for high NABERS offices, compared with $92.6 a sq m for all offices and $120.3 a sq m for low NABERS-rated buildings.

Vacancy rates also showed noticeable differences. Green Star and high NABERS-rated buildings had vacancy rates of 3.2 per cent and 4.8 per cent, respectively. This was lower than the average of 5.5 per cent for the overall Australian office market, and much lower than the 9.7 per cent rate for low-performing buildings (0-3.5 NABERS stars).

Green Star offices were the highest performers on WALE, with the average lease expiry not for seven years, compared with five years in the general market. High-performance NABERS buildings were just off the average on 4.9 years, though higher than low-performing buildings, with the average lease up for expiry in 3.5 years.

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