Property investors heighten their focus on ESG considerations after watershed year

It was a watershed year for Environmental, Social and Governance (ESG) investing in real estate in 2021 as pandemic- and climate-related disruption, along with growing recognition of social inequity, prompted investors to adopt a more robust approach to sustainability-related risks.

CBRE’s 2021 Global Investor Intentions Survey, shows that 60% of respondents have adopted ESG criteria as part of their investment strategies, with the Americas, EMEA and Asia-Pacific all recording a stronger focus on ESG issues than in previous years.

Several major commercial office transactions last year showed that it is a priority for major institutions to deploy capital into buildings with the highest levels of green credentials. These assets have already started to separate themselves from the pack and this trend is set to gather pace as the world’s top sovereign wealth and super funds have listed ESG as one of the key drivers in their decision making.

It’s a shift that has seen investors embed ESG considerations into every stage of the property lifecycle, from due diligence to acquisitions and from leasing to asset management, according to CBRE’s Senior Managing Director, Queensland, Bruce Baker.

“With the energy used to heat, cool and light buildings accounting for 28% of all global carbon emissions, pressure is growing on building owners, operators and occupants to reduce their carbon footprint,” Mr Baker said.

“While carbon reduction efforts may not generate higher rents to offset the yield premium today, it will play a prominent role in preserving asset value as occupiers increasingly shy away from properties with subpar environmental performance. And, as occupiers and investors are drawn to properties that are more sustainable, these assets will be worth more.”

One of the first major offerings of the year will be Brisbane’s Energex House, Queensland’s first 6.0-star Green Star office building and the recipient of the maximum 5 Star GRESB Rating in 2021, placing it amongst some of the top core corporate office investments in Australia from an ESG perspective.  

Real estate investor and fund manager Cromwell Property Group developed the asset in 2010 and is now selling as unitholder feedback has indicated a preference for a return of capital. As the fixed term syndicate is reaching the end of its life, Cromwell feels the timing is right given the investor appetite for assets offering ESG credentials coupled with the fact that investors in the fund, who have already enjoyed very strong performance since inception, are likely to be very satisfied with the sale result.

CBRE’s Mr Baker, Peter Chapple and Tom Phipps  together with JLL’s Paul Noonan and Seb-Turnbull have been appointed to steer the international Expressions of Interest campaign for the fully leased Newstead property, which has pricing expectations of more than $360 million.

The state government-owned Energy Queensland – one of the country’s largest electricity infrastructure distributors – occupies 92% of the 30,563 sqm building on a long-term lease through to August 2030.

Mr Baker said the building’s ESG attributes and strong tenancy covenant were expected to be key drivers of domestic and offshore buyer interest.

“There has been a clear uptick in investor appetite for quality Australian office assets with robust ESG credentials,” Mr Baker said.

“In the case of Energex House, the building offers exceptional sustainability ratings and an anchor tenant that delivers essential community and social infrastructure and has made a significant investment into delivering high quality ESG outcomes to its customers and stakeholders. This includes a commitment to source 50% of energy from renewables by 2030.”

Mr Turnbull, JLL’s Queensland Head of Capital Markets, said the asset’s coveted near city location would be another buyer drawcard, with the building prominently positioned on a massive 9,682 sqm, inner Brisbane site.

“Energex House set the benchmark as the first major commercial development in the Newstead Riverpark area, now a thriving precinct with high-end dining and retail at Gasworks Plaza,” Mr Turnbull.

“The area experienced inner Brisbane’s highest population growth over the five years to 2020 at 9.1% per annum and is expected to continue to outperform, with more than 33,000 additional residents forecast by 2026.” 

Energex House was purpose-built for Energex in 2010 and provides a campus-style office environment – including the largest office floorplates in Brisbane at circa 4,600sqm, with full-height atrium spaces bridged by interconnected staircases.

The asset is complemented by multiple ground level retailers and end of trip facilities.