Green buildings - good business

The demand for environmentally friendly office space and the hunger among investors for profitable low-carbon investments is driving business at Threadneedle Investments


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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