CBRE Report: Sustainability Gains Ground in Europe: 34% increase in certified office take-up in H1 2023

CBRE, one of the global and national leaders in commercial real estate investment and services, has launched the third edition of their research report, ‘Is Sustainability Certification in Real Estate Worth it?’. The report, conducted in 19 European countries, including Romania, confirms a significant correlation between sustainability certificates, higher energy performance, and office building market value.

According to the CBRE’s research, certification standards are likely to evolve further. The data shows that, in H1 2023, the share of certified office properties in the analysed markets increased to 22% from 15% in 2019.

Due to its relatively young modern office stock, the cities analysed in Romania are among the top of those included in the CBRE study with an average share of over 70% of certified office stock – 60% Iasi, 70% Cluj-Napoca, 75% Bucharest, respectively over 80% Timișoara. From the CEE region, only Warsaw is making its place in this top with almost 70% certified stock.

„Through this report, CBRE aims to enhance the availability of data and analytical insights in real estate, one of the sectors of the economy that can materially contribute to reducing carbon emissions. Our research data allow real estate market participants to implement their stated intentions and make environmentally better and measurable decisions. Moreover, in Europe, there is growing evidence of a flight to quality. The aggregated certified office take-up figures presented in this report have confirmed the trend that leasing and investment activity is increasingly focused on certified buildings”, stated Valeriu Toma, Head of Property Management at CBRE România.

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The report indicated that legislation regarding energy performance standards will become more stringent. As a result, in buildings with high sustainability standards, cash flow parameters such as rental growth rate, occupancy ratio, depreciation and yield may benefit.

Maintaining the balance between location and sustainability – A key challenge for the office sector

The office market will still remain under the impact of sustainability, according to the CBRE research. Property owners and investors continue to pursue environmental certifications for their office properties. Sustainable buildings make up a rising proportion of office stock and leasing activity is following suit. Certified office take-up has grown in all cities from the 19 countries analyzed, on average, from 31% in 2019 to 34% in H1 2023, underlining the importance of sustainability in building selection.

A key challenge for the office sector will remain striking the balance between location preferences and sustainability, while certification can lower vacancy risks. Buildings with sustainability certifications command a 7% rental premium after adjusting for building size, location, age and renovation history. At the same time, assets with lower EPC ratings generate lower rental levels, indicating the importance of energy efficiency.

The effect of sustainability certification on premium rents is clearly visible in the Romanian market, with rents for certified office space 10% higher in Bucharest, almost 15% higher in Cluj-Napoca, 25% higher in Brasov, and slightly over 35% higher in Timisoara.

„In property owners’ and investors’ pursuit to decarbonise their portfolios, sustainability certifications, and energy efficiency will continue to play a pivotal role in ensuring the transition to a low carbon economy and managing potential stranding risks. The constant growth of related assessments required by our clients – from energy assessments, net zero carbon pathway analyses, to physical climate change risk assessments or mapping regulations and incentives it’s clearly confirming this trend for us,” stated Alina Bordei, Account Director Property Management at CBRE România. 

Certification can be a significant but not a determining factor in lowering vacancy risk. Balancing location preferences with the sustainability agenda remains a challenge when committing to a new space/office. In the short run, the balance on the local markets will be influenced by the share of certified space under construction. While accessibility is defining location strategies, sustainability is driving building selection.

Thus, ESG remains just one of the factors that are relevant for decision-making, as occupier preferences towards buildings that offer high amenities and user experience extend well beyond ESG priorities.