A Savills global study of over 2,000 offices across major global cities identifies a potential rental premium of up to 23% and longer leases for office buildings that have strong environmental accreditation.
The international real estate advisor examined rental data from over 2000 offices across five global cities: Amsterdam, London, New York, Chicago, and Hong Kong. Using unique hedonic rental models* for each city, its analysis controlled for factors that influence rents in each market - including office grade, building age, proximity to major transport links and floorplate size - to identify the rental premium associated with environmental building accreditation, independently of other characteristics that may influence pricing.
Offices in Hong Kong that have high environmental credentials may command potentially up to 23% higher rents than those do not have similar accreditations, while office occupiers in Chicago can expect to pay a ‘green premium’ of only 6% for high environmental performance.
|
‘Green Premium’ |
|
|
Hong Kong |
23% |
|
Amsterdam (Zuid) |
18% |
|
London (City) |
11% |
|
New York (Midtown) |
7% |
|
Chicago |
6% |
Source: Savills Research
Sarah Brooks, Associate Director in Savills World Research, comments: “Our findings show that the market continues to place a measurable value on more sustainable buildings, even when controlling for other factors. However, the size of the premium varies significantly between markets, reflecting differences in local supply and demand dynamics, regulation, and the broader market sentiment and policy environment in each location.”
In the research, Savills valuation experts also note that sustainability is one of several drivers of market performance, alongside location, building quality, flexibility, accessibility and occupier experience, and that impact is likely to vary by market segment and asset quality. Sustainability increasingly functioning as a hygiene factor at the prime end of the market rather than a source of unlimited rental outperformance and a factor that protects against downside risk and preserves asset value.
Georgios Askounis, Director, Savills Earth, says: “It is encouraging to see office rental markets worldwide recognising the value of sustainable building certifications and paying a premium for them, albeit to varying degrees. Notably, greater sustainability ambition continues to command a premium, even where certification is already the expected baseline. In the City of London, BREEAM Excellent offices, in many cases a policy requirement, achieve a rental premium of around 10%, while BREEAM Outstanding offices, a voluntary commitment to best practice, command around 18% above BREEAM Excellent, alongside longer lease terms.
“Certification is, of course, not an end in itself, but these premiums recognise its value as an independently verified framework for delivering efficient, low carbon, climate resilient and healthier spaces.”