When in doubt, everyone chooses to save money
Markus Reinert FRICS
Interview with Markus Reinert FRICS, Chairman of the Board/CEO of IC Immobilien Holding AG
Energy-saving and low-emission operation is an important factor in the management and valuation of real estate investments. However, especially when it comes to Green Buildings, a variety of high – and expensive – standards are often bandied around, not all of which necessarily make economic sense for investors or tenants.
Mr Reinert, is the industry focussing too much on the issue of sustainability?
Don’t get me wrong – we should definitely think about how we can design and operate real estate in the most environmentally friendly way possible. Nevertheless, in the current debate on sustainability in the real estate industry, one very fundamental point seems to have been neglected. First and foremost, every asset has to be profitable. And if investors are ever faced with a choice between profitability and sustainability, the majority will most likely opt for the former. Of course, in an ideal case, it would be possible to reconcile the two.
But aren’t sustainability criteria currently becoming more and more of a condition for investments?
It’s a little more complicated than that. It is true that some investors will only buy certified properties. However, they represent only a small fraction of the market. For the majority of investors, sustainability certificates, for example, are not a key factor in determining purchase prices or rental prices. Moreover, not all certificates are equal. Achieving BREEAM certification involves much less effort and costs than LEED certification. In Germany, this is compounded by the rather complex DGNB certification process, for which there is no direct international comparison. The more specific a certifying body’s criteria catalogue, the higher the costs for investors and thus ultimately also for users. In an international context, it must be clearly stated that the energy-efficiency building standards for non-certified buildings in Germany are among the highest in the world.
A lot of people claim that, in the long term, these costs will be compensated for in ongoing operations ...
I beg to differ. It is true that pure energy costs can be lower than for a non-certified building. But current market studies show that green buildings can be significantly more expensive to manage than conventional properties. In addition to having more complex ventilation systems, for example, higher technical property management requirements are often a significant cost driver. Another blanket argument that is heard all too often is that of long-term rentability. We can be fairly certain that new property- and business-related ESG criteria will be added continuously over the next ten years. However, whether or not an investment actually gains any added value through certification must be considered on a case-by-case basis.
This means that the exact opposite is also conceivable?
Quite. Imagine an investor buys a “green” property at an over-inflated price today and the local rental market relaxes. Only a few users will then be willing to pay any kind of green premium – and this is particularly true for start-ups and medium-sized companies, which are already increasingly moving to more peripheral locations and, when it comes to renting new spaces, are looking to strike the optimal balance between “being green” and being cost effective.
About: Markus Reinert FRICS is Chairman of the Board/CEO of IC Immobilien Holding AG.
