In its third year, the MSCI South Africa Green Annual Property Index continues to provide an independent and consistent comparative return on investment for green-certified and non-certified offices.
Released in conjunction with the Green Building Council of South Africa (GBCSA) and sponsored by Growthpoint Properties, the MSCI South Africa Green Annual Property Index measures investment returns for a total of 317 prime and A grade offices, (R54,5 billion capital value), and compares the returns of 96 green-certified buildings (R21,8 billion capital value) to the return of the remaining 221 non-certified constituents.
“The latest index indicates a significantly higher return in the case of green-certified office properties, based on lower vacancy rates and higher net income per square metre,” says Rudolf Pienaar, chief development and investment officer at Growthpoint Properties. “The outperformance is further based on a lower discount rate, offering green-certified office investors lower risk investments; an aspect to definitely focus on in this property market.”
For the three-year period ended December 2018, the green-certified office sample delivered an annualised compound total return of 10,3% versus the 7,2% of the non-certified sample. Green Star certified office buildings also delivered an inflation-beating total return of 7,6% in 2018.
Key drivers of green-certified building performance include substantially lower vacancy rates and higher net income per square metre of space.
What has been the driving factor?
This performance has been driven by a higher capital growth, as a result of a superior net income growth and a lower discount rate – meaning that valuers view green-certified office properties as a lower risk investment.
The meaning behind these results
Released by MSCI on 4 July 2019 at a GBCSA member event, the index results reinforced the association between quality and green-certified buildings, as reflected by a higher capital value per square metre, more resilient capital growth and slightly lower income returns than the non-certified office buildings.
That said, the returns of certified and non-certified buildings were remarkably similar, with only a 0,2% premium spread in favour of non-certified buildings over the period measured.
Findings from the analysis showed that capital expenditure stood at 0,7% of the capital value for Green Star certified buildings, versus 1,1% of the capital value for uncertified buildings. This means that green-certified buildings have required comparatively less capital expenditure, which has enhanced capital growth relative to the non-green sample.
Growth of green buildings
According to the GBCSA, it first developed the Green Star SA rating tools to provide an objective measurement for green buildings across South Africa and the rest of the continent.
These tools recognise and reward environmental leadership in the property industry, supporting design professionals and developers in creating a better built environment for both people and the planet.
Since its inception, the number of certified buildings has grown rapidly and consistently. “Investors are keen to determine whether the capex spend on developing green buildings actually shows acceptable returns,” concludes Pienaar.
Acknowledgement and thanks go to www.gbcsa.org.za for the information contained in this article.