UNEPFI case studies highlight $230-300bn real estate energy efficiency opportunity by 2020

Relatively fast payback, asset value retention and energy price hedge among benefits of strategy, says UN affiliated body.

Case studies show that institutional investors can benefit from energy efficiency improvements in existing real estate exposure through quick paybacks, hedges against energy price fluctuation and higher rental and re-sale, according to the United Nations Environment Programme Finance Initiative (UNEP FI) Property Working Group. In a new report titled “Commercial Real Estate: Unlocking the energy efficiency retrofit investment opportunity”, UNEPFI presents examples from investors including CalPERS, the US pension fund giant, and France’s sovereign wealth fund, the Caisse des Dépôts et Consignations, as well as property funds specialists and developers, of effective energy efficiency programmes, alongside the investment challenges they have overcome. The paper says the financial opportunity in energy efficiency building retrofits could be between $231-300 billion per annum globally by 2020, much of which remains untapped. It says that despite the upfront expenditure, energy efficiency measures can recoup its cost quite rapidly, depreciate slowly and deliver long-term returns. The report says investing in a 30% improvement in building efficiency would have an internal rate of return (IRR) of 28.6 per cent over a 10-year period. It also finds a correlation between energy-efficient buildings, higher rents and sale prices. Conversely, low-performing buildings have longervacancy rates and greater value decline, according to the research cited. Tightening energy efficiency regulation, the report says, means retrofitting is a necessary part of risk management for asset value protection. Regulations for mandatory disclosure of energy performance of commercial buildings exist in Singapore, Australia, the UK and France and in over 10 US cities. The report says such regulatory requirements push the mean performance of buildings upwards meaning that low performance buildings lose value and may be difficult to sell since they require upgrades to meet legal requirements. The report makes a series of practical recommendations to help them tap the energy efficiency opportunity. These include executive awareness of the business case, measurement and benchmarking of existing building energy performance, portfolio energy efficiency targets, and linkage of asset manager compensation to energy performance. The report is co-authored by Co-Chairs of the UNEP FI Property Working Group, Laurie Weir, Senior Portfolio Manager at CalPERS and Frank Hovorka, Responsible Property Director Caisse des Dépôts et Consignations.
Separately, the 2013 MSCI Global Asset Owner Survey
examines the asset allocation processes of institutional asset owners, with a close examination of real estate assets.