MSCI South Africa Green Annual Property Index 2023

The MSCI South Africa Green Annual Property Index for 2023 continued to support the investment case for sustainable, resource-efficient real estate. Released annually since 2016, in conjunction with the Green Building Council of South Africa (GBCSA) and sponsored by Growthpoint Properties (JSE: GRT), the index provides an independent, globally consistent view on the investment performance of green-certified and non-certified offices.

For 2023, the index showed that green-certified Prime & A-grade offices produced a total return of 5.8%, which was 150bps above that of non-certified office assets of a similar quality during the year. This outperformance was driven by a higher capital growth on the back of superior net income growth and a lower discount rate - meaning that valuers view green-certified office properties as a lower-risk investment. Despite higher interest rates, the discount rate of green-certified offices was unchanged during the year while that of the non-certified subset increased by 130bps which implies that valuers deemed that green offices’ future cashflows were both lower risk and more likely to grow at a faster rate.

Green offices’ net operating income was also 30% higher per square metre compared to non-certified office buildings which reinforced the premium blue-chip occupiers place on green office accommodation.

Paul Kollenberg, Growthpoint Head of Asset Management: Offices, comments, “The MSCI index continues to demonstrate that green buildings are valuable investments. Beyond that, it highlights the reduced electricity and water expenses associated with these properties. As tenants increasingly consider their ‘total cost of occupation’ and utility prices continue to rise, leasing space in an energy-efficient green building becomes the sensible choice. Additionally, the cost of supplying backup power to these properties is lower due to their reduced consumption.”

At the end of 2023, the index sample comprised 258 Prime and A-grade office properties valued at R54.2 billion of which 163 were green-certified buildings. These were compared to 95 non-certified offices of a similar quality along several key performance metrics.

“This study demonstrates the business case for going green, and importantly, this is based on local data as evidence. Given the need for both economic and climate resilience for any sector in South Africa, there is a powerful green story to be told here for South African business leaders, and what it could come to mean in a more climate-conscious future,” says Georgina Smit, GBCSA Head of Technical.

Since the index’s inception in 2016, the sample of green-certified offices outperformed the non-certified sample by a cumulative 24.0%. For every year since the index inception, green-certified Prime & A-grade offices produced a superior capital growth when compared to non-certified office assets.

Over this eight-year period, the vacancy rate of green-certified offices was, on average, 1.4% lower while its net operating income grew 1.0% faster per annum - helped along by a lower gross cost-to-income ratio and higher Net Operating Income (NOI).

Driving the lower operating costs of green-certified offices were significantly lower per square metre usage of electricity (-7%) and water (-21%) when compared to non-certified offices over this eight-year period, which was characterised by rapidly rising administered costs, and which could have a significant impact on investment performance and valuation over the lifecycle of a property.

Released in April 2024, the MSCI South Africa Green Annual Property Index for 2023 demonstrated the positive relationship between green-certified buildings and investment returns but also its impact on property fundamentals that could underpin future performance.

“Measuring climate risk in a quantifiable way is moving to the top of the agenda. We have to measure it, show that we are managing it and then rubber stamp it with credible accreditations. This index goes a long way in doing this,” says Eileen Andrew from MSCI.

Lisa Reynolds, CEO of GBCSA commented, “As the sample size of green certified Prime/A-grade offices increases, the investment value “good news” remains on its positive trend. The green-certified retail numbers are similar to where we started for offices in 2016; and the results show the same investment positivity. These results give all involved in the property sector a sense of confidence in the superior performance of green-certified buildings – whether it be financial returns, resource efficiency or mitigation of risk. These are all indicators of growth in the green economy.”

As a trailblazer in sustainable commercial property, Growthpoint has a large number and range of green-certified buildings. These green buildings enhance its climate resilience and significantly minimise its carbon footprint, aligning with its ongoing commitment to exemplary environmental, social, and governance (ESG) performance. Growthpoint’s forward-thinking sustainability strategy aims to achieve carbon neutrality across its entire portfolio of buildings by 2050.

Growthpoint’s Head of Sustainability and Utilities, Grahame Cruickshanks says, “At Growthpoint, we benefit from the comprehensive ESG and financial advantages of green-certified office buildings. The data provided by MSCI and GBCSA empowers us to proactively maximise our certification benefits by benchmarking the buildings in our portfolio, improving performance to reduce operational costs, maintaining and enhancing green certifications, and charting our progress towards more ambitious goals such as Net Zero."

Link to the MSCI SA Green Property Index factsheet https://www.msci.com/www/ipd-factsheets/msci-south-africa-green-annual/0163242457

Growthpoint creates space to thrive with innovative and sustainable property solutions in environmentally friendly buildings, while improving the social and material wellbeing of individuals and communities. Growthpoint is South Africa’s largest primary JSE-listed REIT. It is an international property company invested in real estate and communities in South Africa and across the African continent, Australia, the UK and Eastern Europe. Growthpoint is 50% co-owner of the V&A Waterfront in Cape Town. It is an established leader in commercial green developments and owns and manages a large number and range of green-certified buildings. Visit growthpoint.co.za for more information. Connect with Growthpoint on Facebook, Twitter, LinkedIn and YouTube. Media enquiries bronwen@catchwords.co.za

MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 45 years of expertise in research, data and technology, we power better investment decisions by enabling clients to understand and analyse key drivers of risk and return and confidently build more effective portfolios. We create industry-leading research-enhanced solutions that clients use to gain insight into and improve transparency across the investment process. To learn more, please visit www.msci.com.  

The GBCSA works with its membership community to transform the built environment for people and planet to thrive. We are passionate, collaborative planet shapers that operate across the commercial, residential and public sectors to ensure that buildings and homes are designed, built and operated in an environmentally sustainable way. Our combined influence drives competitive, viable and professional membership advantages. GBCSA’s affiliations enable access to a community of experts at home and abroad. The GBCSA is one of about 75 members of the World Green Building Council. Together we create a platform for advocacy, training and certification. Visit our website gbcsa.org.za or connect on LinkedIn, Instagram, Facebook or Twitter