By Amy Erixon and Rodney McDonald (Toronto)
As weather patterns become increasingly difficult to predict, and extreme weather events begin to wreak greater havoc
on buildings across the globe, the time has come for all real estate investors
– not just a few developers or institutions – to incorporate sustainability into
their investment decision-making process.
If you’re still wondering if
such a shift in thinking is worth it, consider these facts:
More clients and tenants looking for sustainable real
estate
If you operate a real estate
investment management company, you likely field questions regularly about sustainability options. This situation
arises because many investment funds – such as the Healthcare of Ontario
Pension Plan – today have their own investment sustainability criteria that
guide their investment decision-making process across diverse assets, including
real estate, stocks and bonds.
Similarly, many tenants are
increasingly attracted to green buildings. In a recent PGIM survey, 78% of
tenants said that energy efficiency and green building operations are either important or very important to them.
Sustainability has positive impact on returns
Yes, more sustainable
buildings are good for the environment – but
they’re good for investors’ bottom lines, too. A 2016 study by Drs. Nils Kok and
Avis Devine, published in the September 2016 issue of the Journal of Portfolio Management, looked at
10 years of financial performance data for landlord Bentall Kennedy’s North
American office portfolio. The study showed that by reducing energy consumption by 14%, the company was
able to increase renewal rates (5.6%), tenant satisfaction (7%), rent (3.7%)
and occupancy (4%) – and decrease concessions 4% as well.
In today’s era of rapid
social, economic, global and geopolitical change, it’s essential to do your due
diligence when acquiring and managing an asset. While many investors and
investment management companies use data to guide their decision-making
process, they often continue to overlook climate data. Such an omission could
be costly down the road. Using climate maps as data points today can help you protect
your long-term returns – for example, by helping you to identify areas prone to
flooding and take proactive measures to mitigate
the financial impacts of severe flooding on your real asset portfolio.
Such foresight will not only
help protect your building(s) from environmental damage in the future, but also
allow you to avoid higher insurance premiums.
(Amy Erixon is a
Principal of Avison Young and Managing Director, Investments. Rodney McDonald
is a Principal of Avison Young and leads the firm’s consulting and project
management services in Ontario. He also leads Avison Young’s Global Citizenship
affinity group, implementing the firm’s corporate social responsibility,
sustainability and philanthropy strategy. Both Erixon and McDonald are based in
Toronto and can be reached at (416) 955-0000.)
