The colour of money is certainly green

The world economy and climate change aren’t separate issues. The Australian Prime Minister Kevin Rudd said recently that, despite the recession, when it comes to climate change, “the [economic] cost of inaction is greater than the cost of action”. In the property arena, evidence of this has been found. The Royal Institution of Chartered Surveyors (RICS) has supported research on the financial performance of green office buildings in the US. It found that buildings with a high Energy Star rating (a voluntary energy rating programme similar to Energy Performance Certificates) are attracting rental premiums of three percent per square foot, compared with non-green buildings of the same size, location and function. When looking at effective rents (the true rental value of a property) the premium is six percent. Also, these green buildings can command sale prices of 16 percent higher than their non-green counterparts. This, says the RICS, implies that upgrading the average non-green building in the US to a green one would increase its capital value by some $5.5m.

Simon Rubinsohn, RICS’ chief economist, pointed out that businesses would have to increase the energy efficiency of buildings in order to maximise profits and remain competitive. He added that “non-green buildings will eventually become an outdated model”. Hear hear. The wise investor recognises that sustainable property is future-proof. Granted, it may be difficult to find tenants and investors here who would pay any premium under the current climate, but we should at least aspire to this goal.

The RICS plans to work on a similar study in Britain. Although green buildings, like any ethical product, are generally accepted to command higher financial values, some solid evidence in this country may help to arouse the complacent into proaction. The Chartered Institution of Building Services Engineers (CIBSE), in conjunction with Building magazine, conducted research into EPCs and DECs (Display Energy Certificates). It was found that the certificates were proving ineffective, with just 21 percent of property professionals requesting that changes were implemented to improve energy efficiency. This is disappointing, though not surprising; I suspect that the reasons behind the results were largely cost-led.

Yet the ‘greening’ of existing buildings, rather than being a cost burden, can save money for both landlord and tenant. According to the British Property Federation (BPF), the downturn – coupled with soaring energy costs – is actually forcing occupiers to cut their energy use, much in the same way as householders are. The BPF’s president, Francis Salway, has announced that he is committed to the concept of greening existing buildings; the organisation in fact works with major occupiers to help them cut their energy use. Even better to make the building greener in the first place, but if a major renovation is out of the question, a greener fit-out could be negotiated. A recession certainly encourages flexibility and lateral thinking.

Back to zero
Residential property is perhaps ahead of its commercial counterpart in sustainable building design. This could partly be down to the lack of an equivalent to the Code For Sustainable Homes (CFSH), as well as the variety and complexity of commercial buildings making it difficult to regulate. Yes, we have BREEAM (the Building Research Establishment’s Environmental Assessment Method) and EPCs, but these have failed to be sufficient. For existing buildings, implementing improvements to buildings as per the EPC should be mandatory, but with grants and funding readily available, as it already is for residential buildings.

The UK Green Building Council said at Ecobuild this year that it supported rules for commercial buildings similar to the CFSH. A government consultation on this topic is due later this year – and not before time. Meanwhile, the government has only just completed its policy consultation on the definition of zero-carbon. No wonder that the current system is a confusing mess of conflicting practices, recommendations and regulations! Only once we can all agree on what defines a zero-carbon building can we make any significant progress. Let us hope that a Code for Sustainable Buildings takes a more sensible, intuitive approach than its predecessors.

Taxing times
As the recession decimates the high street, shop after shop is becoming vacant. For instance, I was saddened to read that in Hull, in my home county of Yorkshire, there are 112 vacant outlets – that is 18.5 percent against a 10.8 national average. This desperate situation is not helped by the ludicrous Empty Rates Tax, which is forcing owners to demolish buildings, this being the cheaper option. The BPF, which has launched campaign website emptyrates.com to fight the tax, says that some 15 million square metres of property has been knocked down since the tax was introduced a year ago. The phrase ‘kick them when they’re down’ springs to mind.

And reducing Business Rates to two percent instead of five doesn’t come as much consolation, as the remaining three percent will still have to be paid over the next two years. Why not write it off? In these hard times, businesses can do without the extra financial burden. Local authorities had already issued the new rates bills – precious time will now have to be spent recalculating and resending the bills. Perhaps the shake-up of local authorities, which came into effect on April 1, will help to streamline local government departments (well, what’s wrong with a bit of optimism?).

One to watch
You might have heard that Milton Keynes is a hot place to invest, with a thriving office rental market; I don’t dispute this, as major occupiers choose to move their headquarters to the town. But if you’re looking for investment opportunities on a par with Milton Keynes, nearby Luton could be a viable alternative.

A good 20 miles closer to London, Luton has excellent transport links: as well as the airport and the M1 right on its doorstep, it has decent rail links to London, which are receiving improvements with the Thameslink programme underway. The town’s highest rental values match Milton Keynes, at £20 per square foot, and vacancy rates don’t differ much either, at 11.2 percent. Now, Luton is a town in need of a facelift if ever I saw one, but it warmed my heart to discover there are some promising new developments in the pipeline. The city has £4bn of improvements planned over the next four years, and more than £10bn by 2030.

A £20m redevelopment of the Arndale shopping centre has begun, and will be open for business in late 2010. The old Vauxhall car plant, which has now been fully remediated, is about to be transformed by Explore Investments into Napier Park – a £440m development, creating state-of-the-art offices and industrial space. Plus, there are further plans to regenerate the town centre with a rebuilt railway station.

Luton is not behind the times on sustainability, either: the Innovation Centre and Business Base at Butterfield Park has already received an ‘Excellent’ BREEAM assessment. And the rest of the park boasts the first office buildings in the UK to incorporate a ventilation system using earth ducts.

While Luton has historically been one of our least fashionable cities, this once ‘new’ town has a few tricks up its sleeve to make it worthy as one to watch.