Green buildings — good business

Since Pep­si vacat­ed its premis­es in Rich­mond upon Thames, the build­ing has expe­ri­enced a remark­able turn­around in its for­tunes. A typ­i­cal 1980s-style office block, which nor­mal­ly strug­gles to attract ten­ants, is in the process of becom­ing a state-of-the-art, low-car­bon office space. When com­plet­ed, it will be the new HQ of fast-grow­ing e‑retailer notonthehighstreet.com who have com­mit­ted to pre-let the build­ing pri­or to com­ple­tion.

The build­ing is under­go­ing a full refur­bish­ment cost­ing around £150 a square foot, includ­ing an upgrade of the façade and win­dows togeth­er with a new, low-car­bon emis­sions tem­per­a­ture con­trol sys­tem. This would be the same cost of a tra­di­tion­al ener­gy inef­fi­cient refur­bish­ment.

It is one of a num­ber of suc­cess­ful trans­for­ma­tions achieved by the Thread­nee­dle Low Car­bon Work­place Trust (LCW). LCW is a unique part­ner­ship between Thread­nee­dle Invest­ments’ prop­er­ty team, prop­er­ty devel­op­er Stan­hope and the Car­bon Trust, an inde­pen­dent organ­i­sa­tion and world-leader in low-car­bon issues. LCW’s aim is to refur­bish exist­ing build­ing stock to bring it up to a low-car­bon stan­dard, while also enabling investors to achieve sta­ble returns.

With investors look­ing for projects with a respon­si­ble social and envi­ron­men­tal ele­ment that offer attrac­tive risk-adjust­ed returns, LCW meets this demand by aim­ing to deliv­er 20 per cent return on equi­ty. “It’s an eco­nom­i­cal­ly viable, social­ly respon­si­ble and prof­itable invest­ment,” says Don Jordi­son, man­ag­ing direc­tor of Thread­nee­dle Prop­er­ty Invest­ments. Investors in LCW cur­rent­ly include local author­i­ty pen­sion funds and mul­ti-nation­al occu­pa­tion­al pen­sion schemes among oth­ers.

It’s an eco­nom­i­cal­ly viable, social­ly respon­si­ble and prof­itable invest­ment

LCW is also find­ing that coun­cils, most of which are encour­ag­ing pub­lic trans­port and, in par­tic­u­lar, cycling are hap­py to give con­sent to envi­ron­men­tal­ly friend­ly build­ings extend­ed over their now obso­lete car parks, there­by increas­ing the square footage of space and returns.

Office build­ings are the third worst offend­ers when it comes to car­bon emis­sions in the UK, con­tribut­ing around a fifth of total car­bon emis­sions, says Mr Jordi­son. Around 80 per cent of exist­ing office stock is over ten years old and unlike­ly to com­ply with low-car­bon require­ments. New build­ings only account for 1–2 per cent of stock a year, so exist­ing prop­er­ties will need to be upgrad­ed to meet future car­bon-emis­sion tar­gets.

“There is a wel­ter of fis­cal penal­ties for exces­sive ener­gy con­sump­tion. But the Car­bon Trust has intro­duced the first stan­dard in the form of an incen­tive. This is what LCW is now using,” says Mr Jordi­son. The Car­bon Trust stan­dard is the unique sell­ing point for occu­piers.

Mr Jordi­son points out: “Build­ings are often award­ed envi­ron­men­tal rat­ings, such as BREEAM [Build­ing Research Estab­lish­ment Envi­ron­men­tal Assess­ment Method­ol­o­gy], which relate to only one moment in time and take no account of the future occu­pa­tion of the build­ing. The Car­bon Trust stan­dard cre­ates long-stand­ing rela­tion­ships with occu­piers of build­ings over the life­time of the build­ing.”

Since 2011, LCW has reduced car­bon emis­sions on around 250,000 square feet of office space. Ten­ants have ranged from hous­ing asso­ci­a­tions to hedge funds and such is the demand that 90 per cent of the projects have been let before com­ple­tion.

With demand for low-car­bon and envi­ron­men­tal­ly friend­ly office space grow­ing along­side the hunger among investors for prof­itable social­ly respon­si­ble invest­ments, it seems clear that LCW’s port­fo­lio is set to con­tin­ue its impres­sive growth tra­jec­to­ry.

Dis­claimer:

Past per­for­mance is not a guide to future per­for­mance. The val­ue of invest­ments and any income is not guar­an­teed and can go down as well as up. Any opin­ions expressed are made as at the date of pub­li­ca­tion but are sub­ject to change with­out notice and should not be seen as an inten­tion to mar­ket any prod­ucts or ser­vices man­aged by Thread­nee­dle Invest­ments or to be seen as invest­ment advice. Infor­ma­tion obtained from exter­nal sources is believed to be reli­able but its accu­ra­cy or com­plete­ness can­not be guar­an­teed.

The Thread­nee­dle Low Car­bon Work­place Trust is an unreg­u­lat­ed col­lec­tive invest­ment scheme as defined in the UK Finan­cial Ser­vices and Mar­kets Act 2000 (“FSMA”). Accord­ing­ly, pro­mo­tion of the Trust by autho­rised per­sons is sub­ject to the restric­tions on the pro­mo­tion of col­lec­tive invest­ment schemes and on non-main­stream pooled invest­ments made by the UK Finan­cial Con­duct Author­i­ty (the “NMPI Reg­u­la­tions”). Units may not be offered or sold in the Unit­ed King­dom except as per­mit­ted

by FSMA and the reg­u­la­tions made there­un­der and as per­mit­ted by the NMPI Reg­u­la­tions. Poten­tial Investors in the Unit­ed King­dom are advised that all, or most, of the pro­tec­tions afford­ed by the Unit­ed King­dom reg­u­la­to­ry sys­tem will not apply to an invest­ment in the Trust and that com­pen­sa­tion will not be avail­able under the Unit­ed King­dom Finan­cial Ser­vices Com­pen­sa­tion Scheme.

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Thread­nee­dle Invest­ments is a brand name and both the Thread­nee­dle Invest­ments name and logo are trade­marks or reg­is­tered trade­marks of the Thread­nee­dle group of com­pa­nies.