The gap between prime and secondary office real estate is set to widen, forecasts Savills in its latest research report, Savills Offices Trends Report 2022. This is mainly driven by the focus on sustainability and ESG in a broader sense, which means that the demands from office users are changing rapidly.
Demand for offices with energy label A (or better) continues to grow
More and more companies are explicitly striving to reduce their ecological footprint. The demand for offices with energy label A (or better) is therefore increasing strongly. This is especially true for Amsterdam: at the moment 70% of the take-up of office space in Amsterdam is energy label A or better. Ten years ago this was only 30%. Also in Utrecht and Rotterdam, the take-up of sustainable office space (energy label A or better) can now be called substantial: 67% and 60% respectively.
Rent for offices with energy label A (or better) is rising more strongly
Not only is the demand for offices with an A (or better) energy label increasing, but so is their average rent. In Amsterdam, users now pay an average of €35 per m² more for an office with energy label A or better than for an office that scores less. This while in 2013 there was no visible difference between the two rents.
Ellen Waals, Head of Agency at Savills in the Netherlands, explains: “One explanation for this is that users are willing to pay a higher rent for sustainable offices, which generally have a better energy label. Some nuance is also in order here. Offices with a better energy label are often also high-quality, newer office buildings.”
Win Yan Lam, Research Consultant at Savills in the Netherlands, adds: “In the Rotterdam and Utrecht office market, too, the average rent of offices with an energy label A (or better) appears to be higher than those of offices that score less. However, this difference is significantly smaller: in Rotterdam it is €19 per sq m and in Utrecht €13 per sq m. A factor here is that Amsterdam has the highest rent increase of all G5 cities in absolute terms. This is partly because a relatively large amount of (sustainable) new developments has come onto the Amsterdam market. In general, a higher rent is paid for new office stock in any case.”
Investors are also increasingly attached to sustainability
Despite the rising costs of new construction and making existing office buildings more sustainable, investor interest in sustainable offices remains high. The gross initial yield of BREAAM-certified objects has decreased further and further in recent years: last year it was an average of 4.95%, while in 2018 it was still 5.80%. In the same period, on the other hand, the average gross initial yield of offices increased from 7.60% to 8.70%. This means that the yield spread between the two has more than doubled from 180 basis points in 2018 to 375 basis points in 2021.
Reinier Wegman, Director Investment at Savills in the Netherlands, says: “This difference can partly be explained by the fact that BREAAM certified offices are mainly concentrated in the Randstad area, where yields are already under pressure. In addition, this increasing difference also indicates that investors have an increasingly strong preference for sustainable offices, and are therefore even prepared to settle for lower returns. This shows that there will be an increasingly clear split between prime and secondary offices for both the occupier and the investment market.”