“Mind the Green Gap“: Catch-up potential for office in green buildings - Berlin as an example

https://www.avisonyoung.de/w/grüne-lücke-mind-the-green-gap-nachholpotenzial-für-büros-in-green-buildings-das-beispiel-berlin

Green gap and green catch-up potential for green building office deals.
  • Looking at the largest Berlin office leasing deals* in the period 2018-2022, one can find a commitment to sustainability on the websites of 84 % of those tenants (representing 91 % of the rented-out space). But only 42 % of those tenants (representing 56 % of the space) have chosen a property with a green building certificate**. Hence, there is a theoretical catch-up potential for deals in green buildings amounting to 87,000 sqm per year. Adding deals of the public administration among the 20 largest deals as well (that almost entirely took place in properties without a green building certificate), and assuming that the so far non-certified space will occur in a green building at the next rental, another 109,000 sqm p.a. could be added.  
  • While this potential catch-up demand is being reduced by overall office demand probably being downsized in the course of increased hybrid working, with especially large tenants being able to cut space at relatively high shares, the demand is elevated at the same time by way of an increased tenants’ interest in ESG compliant space, also against the background of the ‘war for talent’.
  • It seems rather unrealistic that of those properties described above that have no certification, a large number will receive a green building certificate in the near future. Consequently, those tenants with a sustainability commitment but located in a non-green building, would have to chose to move to a green building at the next upcoming locational decision. However, the current restrictive financing conditions and reduced construction activity limit an expansion of supply. For those green buildings that already exist or are under construction, these developments support rents an prices.
* Basis: The 20 largest office leasing or owner-occupier deals 2018-2022, excluding the sector public administration. These top 20 deals account for 25 % of Berlin’s total office take-up in this 5-year period.
Simplified assumption: These deals will be are representative of the largest deals of the coming years. ** BREEAM-, LEED-, DGNB-registration or (pre-)certificate. Source: Avison Young, BREEAM, LEED, DGNB. 2023 Of course there are numerous buildings that have individual ‘green’ features, without having a certificate. Those, however, are not part of this analysis.
 

06 July 2023

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