From value creation to value preservation - real estate investors rethink the "value of green"

Rhea-AI Summary

JLL released a report titled 'Return on Sustainability', emphasizing the shift in how sustainability impacts real estate value. The report highlights that buildings meeting sustainability standards enjoy 6% rent and 7.6% sales premiums, while non-compliant properties face 'brown discounts'. Key findings from a survey indicate that 83% of occupiers see climate risk as financial risk, and 79% believe carbon reduction will be vital by 2025. The urgency for sustainability is underlined, calling for actions to avoid asset stranding and promote health-focused spaces.

Positive

• Green-certified buildings yield a 6% rent premium and 7.6% sales premium.
• 83% of occupiers consider climate risk a financial risk.
• 79% of occupiers plan to incorporate carbon emissions reduction in their strategies by 2025.

Negative

• Buildings failing to meet sustainability standards may incur a brown discount.

CHICAGO, Jan. 11, 2022 /PRNewswire/ -- Expectations for new buildings – from amenities to environmental footprint – have increased significantly in recent years. Sustainability continues to move up the corporate priority list and investors are rethinking value, making the threat of a "brown discount" more real than ever.  

A new report by JLL (NYSE: JLL), "Return on Sustainability: How the 'value of green' conversation is growing up," highlights the urgency for investors to move beyond the conversation around the "value of green" to instead focus on the long-term return on sustainability. The paper explores a step-change at play around what qualifies a best-in-class building.

"The bar is being raised on what it means to be green," explained JLL's Global Head of Sustainability Services and ESG, Guy Grainger. "Now that the business case for sustainability is undeniable, the time has come to evolve the valuation conversation."

There is a strong financial incentive to go green
While investors initially doubted the value of certifications like LEED and BREEAM, evidence now shows that green certifications result in a rent premium of 6% and a sales premium of 7.6%. These so-called "green premiums" are proving materially significant, however, there is another facet to consider. JLL's research shows that buildings that don't evolve to meet sustainability standards will suffer financially – resulting in a "brown discount."

The definition of green is evolving
New dimensions are quickly emerging to influence the value conversation. Climate risk and resilience, carbon emissions and occupant health are increasingly contributing to conversations around what it means to be "best-in-class" in the built environment.

JLL's April 2021 survey of nearly 1,000 executives, investors and corporate occupiers found that:

• 83% of occupiers and 78% of investors believe climate risk is financial risk.
• 79% of occupiers anticipate that carbon emissions reduction will be part of their corporate sustainability strategy by 2025.
• 42% of occupiers believe that their employees will increasingly demand green and healthy spaces.

Sustainability and wellness-focused certification systems will need to adapt to meet this new moment. Up until now, a highly rated, green-certified building hasn't necessarily been a building with the lowest carbon footprint. Certification standards will soon change as LEED, BREEAM and others launch new carbon-centric benchmarks, defining carbon footprint and incorporating additional elements in the calculation. As investors and companies make environmental and social commitments, they will increasingly need to consider their real estate portfolio to meet climate goals. 

Time is of the essence. According to the Paris Agreement, to avoid the worst impacts from climate change on the global economy, emissions must be reduced 50% by 2030, and the world must reach net zero carbon by 2050. JLL's paper urges those who shape the built environment to take action to avoid asset stranding and to push for sustainable, resilient and healthy places, even in the absence of the perfect case study or data.

Find out more by downloading the JLL report "Return on Sustainability: How the 'value of green' conversation is growing up" at https://www.us.jll.com/en/trends-and-insights/research/return-on-sustainability. 

About JLL
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.6 billion in 2020, operations in over 80 countries and a global workforce of more than 95,000 as of September 30, 2021. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.

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Contact: Gayle Kantro
Phone: +1 312 228 2795
Email: Gayle.Kantro@am.jll.com

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SOURCE JLL

FAQ

What is the 'Return on Sustainability' report by JLL?

The 'Return on Sustainability' report by JLL discusses how sustainability affects real estate valuation, highlighting the financial benefits of green certification.

How do green-certified buildings impact rents and sales?

Green-certified buildings achieve a rent premium of 6% and a sales premium of 7.6% compared to non-certified buildings.

What risks are associated with not adopting sustainability in real estate?

Buildings that do not meet sustainability standards are at risk of incurring a 'brown discount', negatively affecting their market value.

What percentage of occupiers view climate risk as financial risk?

According to JLL's survey, 83% of occupiers believe climate risk is equivalent to financial risk.

By what year do occupiers expect to integrate carbon emissions reduction into their strategies?

79% of occupiers anticipate incorporating carbon emissions reduction into their corporate sustainability strategies by 2025.