Properties which meet stringent sustainability criteria have underperformed their less sustainable counterparts by 400 basis points since Q1 2008, according to new consultative sustainability index by IPD. The new Index now benefits from the sponsorship and support of both the IPF and K&L Gates.
In the most comprehensive analysis ever undertaken on the impact of sustainability on UK commercial property investment returns, the IPD UK Sustainability Property Index (ISPI) Consultation Release reveals that for the properties examined over the 11 quarters to Q3 2010 less‟ sustainable properties delivered a cumulative total return of -10.8%, compared to -14.8% for more sustainable properties index values at 89 and 85 respectively.
Over the near three-year period, capital depreciation among more sustainable properties was -28.0%, compared to -25.2% for less sustainable assets. The third quarter 2010 capital growth figures for more and less sustainable properties were 1.2% and 0.9%, respectively perhaps the first signs of changing relative fortunes.
Christina Cudworth, Head of Sustainability at IPD, said: "The UK property industry is clearly only just at the beginning of a long and gradual process in which occupiers start to base their property decisions on the sorts of sustainable investment, location and management practices which are captured in the ISPI Consultative Release methodology."
ISPI (UK) funded by the IPF Research Programme and now sponsored by global lawyers K&L Gates LLP as well as the IPF has a databank of 978 properties, worth £17.5bn, divided according to their adherence to quantifiable sustainability metrics. They comprise: building accessibility; building quality; energy efficiency; waste; water and finally; flood risk.
Wherever possible, the framework draws on existing environmental tools such as IPD Eco-Ledger, BREEAM, environment agency data and energy performance certificates to measure these criteria. A property is classed as more sustainable‟ if it passes either the BREEAM Quality threshold or four of the remaining five sustainability conditions.
Cudworth added: "IPD owes a huge debt of gratitude to the sponsorship and support of IPF and K&L Gates in helping to make this consultative index a reality. Understanding and measuring the relationship between sustainability and investment performance is a critical priority for the property industry.
"As occupiers increasingly factor sustainability metrics into their decision making, a clearer performance division between more and less sustainable properties will undoubtedly emerge. ISPI will capture that performance differential as practices in this area mature."
Wayne Smith, Head of Real Estate in the London Office of K&L Gates, said: "ISPI is a unique product, and we are delighted to be aligned with the IPF and the IPD in supporting ISPI. As an international law firm, with a worldwide sustainability practice, ISPI is a perfect fit for us, especially given the interest and support afforded to this product by some of our core real estate fund clients." K&L Gates Global Real Estate Practice Group Co-Practice Area Leader.
Louise Ellison, Research Director at IPF, said: "The IPF has been happy to support ISPI from its inception as robust performance measurement is something we consider vital in enabling the industry to respond effectively to the sustainability agenda. We are delighted that ISPI has finally achieved the significant milestone of becoming part of the IPD stable of indices. We look forward to working with both IPD and K & L Gates to ensure it continues to develop and that its results are made widely available across the industry."