Price Premiums for Efficient Buildings IPD Sustainability Index

The Investment Property Databank (IPD) Sustainability Index was introduced in March 2008 and monitors the ungeared performance of sustainable commercial properties in comparison to standard investment properties.

Results are published twice a year showing performance results or more and less sustainable properties in the UK market.Performance data is drawn from over 1,200 properties, from over 100 portfolios and worth £23.1bn (as at March 2011). The data is collated from all sectors of property including retail (£12,336m), office (£7,742 million), industrial (£2,487 million) and other (£553 million). The sample size is small for an index and given sustainability issues are only recently being priced in to market valuation care should be taken when reviewing the data.

Overall Index Returns

At this time the index is in its infancy and the recent results have been skewed due to individual property performance rather than sustainability however it is expected that this type of index may be useful in the future to monitor changes in value due to sustainability and ultimately act as a driver for improvements to be made to buildings in this area.

Returns Based on EPC Analysis

Of the data that IPD has gained, of interest is the Capital growth and Income return for properties based on EPC results. The graph shows that even at this early stage properties with an EPC rating of B,C or D achieved better Total returns than properties with an F or G rating.

In terms of vacancy rates, on average properties with a B rating had  of 6%, markedly better than those with a C (14%), D (9%), E (11.5%), F (8%) or G (11.5%). It could be argued that properties with a B rating would be likely to be those of new build and may be considered 'prime' assets which have outperformed the market in any event for more traditional reasons.

More details can be obtained on the IPF Creating a sustainability Index.

How the Properties are Rated for the Index

A property is deemed by IPD to be more sustainable if it meets the quality threshold or more than five of the sustainability conditions. As noted below the EPC grading is only one of five criteria that the property is awarded points for.

The sustainability conditions are as follows:

Quality BREEAM Has a BREEAM rating of Very Good or above 1
Energy EPC The building is rated A to C 1
EPC The building is rated A to E and 5% of the energy use is from renewables 1
EPC The building is rated A to E and naturally ventillated. 1
Flooding If not in an area at risk of flooding or if so defences are in place. 1
Waste Recycling If waste recycling occurs 1
If water recycling is in place. 1
If water efficient fittings & metering are in place 1