Article
Can investing into greening our logistics building stock offer additional value protection in uncertain times?
September 21, 2022
The business environment commercial real estate (CRE) investors are operating in is fast changing. As we are approaching the end of 2022, inflation features prominently in newspaper headlines and on investors’ agendas. Capital markets are highly sensitive to changes in the overall economy, so are usually the first to reflect these market conditions.
Currently, inflation is cost-push rather than demand-driven, resulting in a lower economic growth forecast. Additionally, in line with interest rates rising, the spreads between real estate and fixed income are narrowing. This has started to translate into some upward pressure on logistics yields across European markets already.
It is therefore important to understand whether investing into logistics assets with sustainable building features can offer additional value protection – on top of a positive rental growth outlook – amid economic uncertainty.
So far, sustainability certifications have drawn much attention in empirical sustainable property investment research; including CBRE’s own publication ‘Is sustainability certification in Real Estate worth it?’. This report focuses on how sustainability office certifications impact value creation, but also the role they are playing in making the European office sector future fit. However, research for other property types, in particular retail and logistics, has been very scarce.
In our new research report, we look at eleven European markets to explore the relationship between BREEAM sustainability certification, logistics yields and rents achieved. According to the results of our analysis, logistics facilities with sustainability certificates are likely to benefit real estate investors financially.
The key highlights from our report are:
As economic considerations are vastly being used to underpin investor decision-making, sustainability features are likely to protect values increasingly going forward. Empirical evidence of financial benefits related to sustainability are being given appropriate consideration in investment decisions, encouraging investors to pursue sustainable building features. For CRE investors, the development of a forward-looking strategy that builds on sustainable investment principles would allow for staying ahead of the curve and build in value protection where possible.
Get in touch if you’d like to see our report and discuss our findings.
Currently, inflation is cost-push rather than demand-driven, resulting in a lower economic growth forecast. Additionally, in line with interest rates rising, the spreads between real estate and fixed income are narrowing. This has started to translate into some upward pressure on logistics yields across European markets already.
It is therefore important to understand whether investing into logistics assets with sustainable building features can offer additional value protection – on top of a positive rental growth outlook – amid economic uncertainty.
So far, sustainability certifications have drawn much attention in empirical sustainable property investment research; including CBRE’s own publication ‘Is sustainability certification in Real Estate worth it?’. This report focuses on how sustainability office certifications impact value creation, but also the role they are playing in making the European office sector future fit. However, research for other property types, in particular retail and logistics, has been very scarce.
In our new research report, we look at eleven European markets to explore the relationship between BREEAM sustainability certification, logistics yields and rents achieved. According to the results of our analysis, logistics facilities with sustainability certificates are likely to benefit real estate investors financially.
The key highlights from our report are:
- 8.1% is the 5-year average share of the investment volume in BREEAM certified stock in the total European I&L investment volume
- 25bps is the 5-year median valuation premium compared to market Prime Net Yield for European Logistics (including UK)
- 30 bps is the 5-year median valuation premium compared to market Prime Net Yield for UK logistics with BREEAM Excellent rating
- Rental premium is not necessarily visible but applicable through lower void periods, higher liquidity and easier (re)letting
As economic considerations are vastly being used to underpin investor decision-making, sustainability features are likely to protect values increasingly going forward. Empirical evidence of financial benefits related to sustainability are being given appropriate consideration in investment decisions, encouraging investors to pursue sustainable building features. For CRE investors, the development of a forward-looking strategy that builds on sustainable investment principles would allow for staying ahead of the curve and build in value protection where possible.
Get in touch if you’d like to see our report and discuss our findings.
Contacts
Jack Cox
Managing Director, Head of European Industrial & Logistics Capital Markets
Jos Tromp
Head of Business Development Continental Europe
Dragana Marina
Head of Research and Data Intelligence, Denmark & Sustainability Research Lead, Continental Europe
