Among Sweden’s property owners, at this point, there are few things more relevant than the environmental certification of buildings. Whether it’s about BREEM, Miljöbyggnad or LEED. In the following article, we explore guiding stars and opportunities in environmental certification as well as what it means for today’s real estate companies. Today, many property owners focus on certifying their holdings. But what is a certification worth in addition to acting as a receipt for being a sustainable property – how can a certification affect rental levels?
In BREEM, Miljöbyggnad, and LEED, the purpose is to guide and make it possible for property owners to confirm that their buildings are sustainable. It is a system that is applied to assess sustainability performance and measures buildings around the world based on various aspects of how sustainability is innovated, evaluated, and developed. The certification is something that is done in existing real estate portfolios as well as in new production. For newly produced properties, and for many property owners, certifications have also become something of a hygiene factor.
Rental premium on environmentally certified buildings
No one can oppose the great benefit of focusing on sustainability and environmentally certified properties. It will be an important benefit for the climate, while in many cases it will have a positive effect on the companies’ financial results in the form of increased property value, lower energy costs and improved attractiveness.
A recently published report from KTH highlights a previously unexplored upside with environmental certifications – namely that it can lead to a clear rental premium. In other words, a direct increase in income for the property owners, who in turn provide an upside on e.g. operating and property value.
The report has focused on office buildings in Sweden’s four largest cities, Stockholm, Gothenburg, Malmö and Uppsala. The input has been to investigate whether the rent level for environmentally certified properties in these locations is different than for properties that are not certified and if there is any difference between the different types of certification.
The results show that there is a clear rental premium and that there is a difference between different certifications. In general, a premium of 4.9 to 5.4 percent is shown for leases in environmentally certified buildings compared with contracts in nearby houses that do not have any certification. The analysis further indicates that BREEM gives the highest premium, followed by LEED and finally Miljöbyggnad.
This will be an important insight for the real estate companies in their persistent work to environmentally certify their portfolio. Without it, it can be difficult to motivate and create additional incentives to allocate resources and work hard on the issue.
Climate benefit and economic gain in a perfect mix – something very attractive for a property owner in today’s tough competition for future tenants!
Among Swedish real estate companies, there is generally a high ambition regarding sustainability. One company that has really profiled itself with its focus on ESG issues is Castellum, which recently received the rating Excellent in Danske Bank’s review of sustainability reporting among large real estate companies. In other words, a good certificate that Castellum is not only good at sustainability. They also show how important it is to measure and report their impact on the environment and that it is completely in line with the basic certification of environmental certification. They have established goals that involve all new and large renovations. From now on they all must be environmentally certified according to Miljöbyggnad Gold. In an overview of the entire company’s portfolio, approximately 44% of the properties are certified. With these numbers, Castellum is the Swedish-listed real estate company with the most certified buildings.