Going green and sustainable has become a big draw for tenants

This article originally appeared in the Business Post.

As one of the largest commercial property landlords in the country, Aviva Life & Pensions Ireland DAC (Aviva) is mindful of constantly improving the environmental and social impact of these investments.  With 58 properties in the fund and a mix across retail, office, industrial and alternative sectors and with the understanding that the built environment contributes almost 40% of carbon emissions globally, Aviva recognises that it has a responsibility to help drive significant improvements in sustainability.

Comments by
Suzie Nolan, Head of Property at Aviva

“Decarbonisation of existing stock and developing new stock to a high sustainable standard are two key priorities for landlords at present.  Until quite recently, this was proving to be a challenging investment decision, as the cost of delivering sustainable or ‘green’ buildings was significantly higher than standard development practices and, while the environmental benefits were clearly apparent, it was difficult to see the financial return.  However, there is now a demonstrable difference between rent levels achievable per square foot for properties with higher BER ratings than for lower rated buildings.  The resultant higher income and capital values make it easier for landlords to justify the investment in improving sustainability standards. 

While developing new buildings to a sustainable standard, and achieving various accreditations such as LEED, BREEAM, WELL, Wired Score etc. is reasonably straightforward, retrofitting improvements to existing properties in a financially viable manner can be more challenging.  However, even though our property fund, and some of the properties have been around since the early 1980s, we have made significant progress in improving the quality of the stock through various initiatives. These include the installation of smart meters, LED lighting, EV chargers, Building Management Systems, window replacements, solar panels, waste monitoring, improved employee amenities, and biodiversity initiatives. 

Central to making tangible sustainable improvements to the emissions from the properties, is the availability of and easy access to good quality, timely data.  This enables both landlords and property managers to identify the main negative contributors to emissions so that they can be addressed.  It also enables efficiencies and cost savings to be identified, which is in the interest of both the landlord and the tenants.  Given that we are targeting a 25% reduction in emissions by 2025, understanding how we can make improvements to the direct and indirect (scope 1 and 2) emissions from the properties is important.”

 

Stronger rental incomes

Aviva reports that a positive development is the increasing evidence of commercial tenants proactively seeking sustainable space, particularly large corporate and public bodies, resulting in higher income and capital values for landlords who invest in improving sustainability standards.

Suzie Nolan explained: “Many of these organisations now have it in their own company mandates that they must occupy sustainable buildings, often dictated by BER ratings. For example, government departments are on a journey to occupy BER A rated buildings by 2028.  Companies now understand and appreciate the benefits of occupying these more sustainable buildings, including the ability to attract and retain staff, and they are willing to pay higher rents to secure the best properties.  The onus is on us as landlords to deliver them.” 

Aviva cites an example of this occupier demand in the high levels of interest in its recently upgraded 18 Lower Leeson Street property from tenants who are currently based nearby but who wished to relocate to a ‘greener’ building.

Suzie Nolan said: “Our new lettings are documented under ‘green leases’ which means that they incorporate clauses which promote the sustainable operation and management of buildings.  This means that the landlord and tenants agree to various obligations to improve the environmental performance of the building, which importantly includes the bilateral sharing of data.  We continue to proactively engage with tenants, hosting quarterly sustainability meetings in our multi-tenanted buildings.  We also issue quarterly sustainability newsletters, providing them with advice on improvements that they can continue to make.”

 

The Social Element

Aviva contends that while the environmental factor is critically important, it also maintains a strong focus on the ‘social’ element of ESG within the fund.

Ms Nolan continued: “Over the past five years, we have provided support to local communities, using vacant properties in the fund.  A property may be vacant for a short while for several reasons – future development plans, protracted letting negotiations or simply waiting to secure a new tenant. In these instances, we have provided retail space either on reduced or very often, a rent-free basis for periods of time.” 

Aviva points to recent examples of providing vacant units for the local community, including House the Heroes, SVP Christmas Cookies, a ‘free shop’ for displaced Ukrainians, Dublin Pride Hub and most recently to Neurodiversity Ireland for a soft play centre for children.  The company is also continuing its close partnership with Champion Green, Ireland’s support local initiative in conjunction with Kilkenny Group and recently announced a multi-let unit to four SMEs on Clarendon Street in Dublin city centre, giving them access to a bricks and mortar retail outlet without the normal associated costs.

“In addition to the use of vacant properties for the betterment of the local community, when a tenant vacates an Aviva-let property and there are fixtures and fittings that are no longer needed such as desks, shelves, chairs etc., we look to distribute these where possible, to local schools or up-and-coming businesses.  This circular economy approach is much better for the environment than ordering a skip and sending it to landfill and has a very positive impact on our local community”, concluded Suzie Nolan.

For the latest information on the Aviva Irish Commercial Property Fund, visit www.avivabroker.ie/irishproperty