Green Real Estate Trusts Yield Higher Returns
June 29, 2015
The University of Cambridge is giving out some free investment advice: real estate investment trusts (REITS) with higher sustainability ratings perform better than their peers, when adjusted for risk.
These publicly traded portfolios of large-scale properties typically offer high yields with long-term capital appreciation, but REITS that have pursued energy efficiency and renewable energy systems do the best, according to the recent study, “The Financial Rewards of Sustainability: A Global Performance Study of Real Estate Investment Trusts.”
Using data from the 2014 GRESB survey (a system that scores real estate portfolios based on company-specific sustainability metrics), researchers found that for every 1% increase in GRESB score, return on assets increased by roughly 1.3%, and return on equity increased 3.4%. Researchers expect the higher returns are a combination of better cash flow due to operational savings and reduced risk from the added transparency of conducting the GRESB assessment.
The research also showed that most real estate companies have plenty more room to capitalize on the returns of sustainability improvements: the median GRESB score in 2014 was only 58 out of 100.