Global Transparency Index provides valuable guidance
Transparency has long been recognised as an important criterion in the decision matrix of investors in the real estate sector. The reason is obvious: the more transparent a market or country is, the greater the level of investor interest.
To put it another way, three quarters of global transaction volumes over the last five years are attributable to the ten countries rated as “highly transparent”. Transparency comprises a number of different factors, which can be divided into five groups:
1. Regulatory and legal frameworks
2. Availability of market information
3. Transaction processes
4. Availability of performance benchmarks
5. Regulation and control of listed companies
Sustainability is missing from this list, because at global level it remains difficult to define uniform standards that could be used to measure transparency based on real data. Accordingly, the JLL Sustainability Transparency Index covers only 37 countries and focuses primarily on data for greenhouse gas emissions, sustainability certificates and energy efficiency standards.
Japan, France, Australia and the UK top the global index
The Global Sustainability Transparency Index has shown a slow but steady improvement with regard to most countries since the last survey in 2014. On a scale of 1 (highly transparent) to 5 (opaque), it now stands at 3.08. Japan has joined the group of “highly transparent” countries for the first time, while newcomer Finland has gone straight into the “transparent” group, where it ranks with countries such as Singapore, Canada and Germany. The top group of “highly transparent” countries comprises France, Australia and the UK, alongside Japan. France brought in sustainability legislation and environmental regulations in the buildings sector back in 2008, and its compulsory reporting on CO2 emissions for real estate investors has helped to establish a positive sustainable development process over the past year. France is also the only country in the world where green clauses are mandatory in office leases and binding on owners and users.
From a transparency viewpoint, there is still a long way to go worldwide when it comes to assessing green buildings. A performance index that allows investors to use appropriate benchmarks for their own building portfolio is available in just four countries (France, Canada, New Zealand and Australia). The situation regarding the availability of concrete data on greenhouse gas emissions is similarly poor. Here again, only four countries have statutory provisions requiring this data to be gathered at individual building level – a significant omission given the significance of the buildings sector for total global emissions.
Sustainability improves lettability
Most countries have now set at least minimum legal requirements for the energy efficiency of new builds, and have market-specific certification systems. The latter now exist in all countries covered by the Index, with the international LEED and BREEAM labels still being the most well-known. Certification offers the key advantage of proper documentation of a building’s sustainability. Leasing space in exclusively sustainable buildings might not be a priority for every office user, but many major companies do consider this aspect when deciding where to locate. The sustainability of buildings is therefore an important factor for real estate investors, particularly if they are looking for ways of making their building more attractive to potential tenants. As with the Sustainability Transparency Index at global level, there has also been an increase in certified office space in Germany this year. By the end of the first half of 2016, it accounted for nearly 6.3 million square metres of office space across the “Big 7” locations, i.e. approximately half a million square metres more than six months previously. This corresponds to 7% of total available office space. The ranking of cities with the highest proportion of certified office space was unchanged in the stated period. Frankfurt remains in first place with over 18%, representing more than two million square metres of certified office space.
Certified space is particularly sought after
Demand for certified buildings also increased slightly among occupiers. In the first half of 2016, total space take-up was 1.79 million square metres in the “Big 7”, of which 241,000 square metres was leased in certified office buildings. This equates to 13.5%, as against 11% in the previous year. Then as now, take-up of certified space exceeds its current 7% share of total available space. This indicates that there is above-average demand for certified space.
Users and investors have similar interests
We expect to see growing interest in sustainable office space in the future as well, both from building users and from investors. The number of certified properties will increase – firstly, because certification of new buildings is very common, and secondly, because certification of existing buildings will become more important. Earlier this year, for example, the German Sustainable Building Council (DGNB) introduced a certification scheme for in-use buildings which focuses on operational aspects. This provides a further option for obtaining property certification in accordance with DGNB criteria.
An article by:
Helge Scheunemann, Head of Research JLL Germany