In line with previous results, Green office buildings continued to outperform the total office property sector, comprised of rated and non-rated assets, which reported an annual return of 9.7%.

Dr Anthony De Francesco, Managing Director of IPD Australia and New Zealand, said: “The latest investment return results clearly show that Green buildings deliver an enhanced investment proposition both in terms of investment return and a firmer cap rate. The enhanced performance of Green buildings is due to a higher capital return component, consistent with generally more favourable space market metrics.”

For the annual total return performance for Green Star rated property assets, returns to December 2012 for 4 star, 5 star and 6 star rated office buildings stood at 10.7%, 10.7% and 10.2% respectively (see Figure 1). Notably, this superior investment return is due to a higher capital return component for Green Star rated buildings.

Over the last 2 years to December 2012, A-grade office buildings with a Green Star rating delivered an annual return of 11.2% versus a 10.1% return for All A-grade office buildings (see Figure 2). In addition, IPD reported a 10 basis points discount on cap rates between Green Star A-grade buildings and All A-grade buildings.

The annual total return performance for NABERS Energy rated property assets by star rating, groups across various CBD markets to December 2012. NABERS rated office buildings for 0-3.5 star and 4-6 star, stood at 8.4% and 10.5% respectively (Figure 3), demonstrating increased returns for higher NABERS ratings.
This notable spread in return performance across rating groups is also evident across key CBD markets. For the Sydney CBD market, annual returns for the 0-3.5 star and 4-6 star NABERS rated office buildings stood at 7.1% and 8.9% respectively. This return, spread across rating groups, is higher in the Melbourne CBD where 0-3.5 star rated buildings delivered a return of 8.4% versus 12.1% return for 4-6 star rated buildings.

Michael Lane, General Manager, Group Sustainability for DEXUS Property Group, said: “The Index results are a valuable source of information for owners, investors and tenants and support our long-term commitment to investing in value-add sustainable initiatives. Over the past three years, we have invested over AUS$30 million in energy efficiency improvements across our listed office portfolio, achieving an average 4.7 star NABERS Energy rating, exceeding our 4.5 star target.”

The Index, which is sponsored by DEXUS Property Group, is comprised of property assets from 32 participants, with a combined asset value of AUS$53 billion, representing 90% of the IPD Australian commercial office database by capital value.