SA Green Star office properties deliver solid returns in tough rental market

The MSCI Green Annual property index is in its 3rd year and continues to provide an independent and consistent comparative return on investment for green certified and non-certified offices.

Released in conjunction with the Green Building Council South Africa (GBCSA) and sponsored by Growthpoint Properties, the MSCI South Africa Green Annual Property Index measures investment returns for a total of 317 Prime & A Grade offices, (R54.5 billion capital value), and compares the returns of 96 Green certified buildings (R21.8 bn capital value) to the return of the remaining 221 non-certified constituents. 

Chief Development and Investment Officer at Growthpoint Properties Rudolf Pienaar said,  

“The latest index indicates a significantly higher return in the case of green-certified office properties, based on lower vacancy rates and higher net income per square meter. The outperformance is further based on a lower discount rate, offering green-certified office investors lower risk investments; an aspect to definitely focus on in this property market.”

For the three-year period the green certified office sample delivered an annualised compound total return of 10.3% versus the 7.2% of the non-certified sample.  Green Star Certified office buildings delivered an inflation-beating total return of 7.6% in the same period.

Key drivers of green certified building performance include substantially lower vacancy rates and higher net income per square meter of space.

This performance has been driven by a higher capital growth, as a result of a superior net income growth and a lower discount rate – meaning that valuers’ view green-certified office properties as a lower risk investment.

Results

Released by MSCI on 4 July 2019 at a GBCSA member event, the Index results reinforced the association between quality and green certified buildings, as reflected by a higher capital value per square metre, more resilient capital growth and slightly lower income returns than the non-certified office buildings.

That said, the returns of certified and non-certified buildings were remarkably similar with only a 0.2% premium spread in favour of non-certified buildings over the period measured.

“The similarity in returns may indicate that adoption of green principles is now a matter of course across higher quality offices, whether certified or not. However, a deeper look into the fundamentals over the 3 year period continues to endorse the argument that green certified offices provide a lower risk investment, particularly during the down phase of the cycle, as reflected by their lower discount rates, markedly lower vacancies and higher net incomes per square meter,” said MSCI Executive Director, Phil Barttram.

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