Low carbon commercial property fund launched (Carbon Trust)

18 March 2010

The Carbon Trust, fund manager Threadneedle and developer Stanhope plc are to partner in a new £350m fund that aims to significantly increase the availability of high specification low carbon commercial property in the UK.

The Threadneedle Low-Carbon Workplace Trust (Threadneedle LCW Trust) launched in the last week aims to raise £100m in the next 12 months and up to £350m within three years from institutional investors. It will refurbish up to 50 properties over the next five years to best practice low carbon standards. Occupiers will be offered space at market rates and will benefit from significant reductions in carbon emissions and energy consumption. They will also receive ongoing assistance to help them occupy the buildings to their full low carbon potential.
The fund expects to deliver performance for investors through the ability of these uniquely competitive buildings to attract considerable demand from high quality occupiers and secure a long term income. In addition there is potential for capital growth and development profit.
Around 40 potential occupiers have already expressed interest in the Low-Carbon Workplace concept with demand being driven by the perceived reputational benefits of occupying low carbon properties, reduced energy costs and legislation including the CRC Energy Efficiency Scheme. The first occupier announcement is expected within the next few weeks.
Recent Carbon Trust research revealed that non-domestic buildings account for 18 percent of the UK’s carbon emissions. The partnership aims to address this not only by providing high specification low carbon buildings but also by assisting occupiers to deliver sustainable carbon savings. Occupiers will qualify for Low-Carbon Workplace accreditation if they achieve a verified per person, per day low-emissions target.
Tom Delay, CEO of The Carbon Trust, said: “This initiative aims to prove that green business opportunities can deliver the secure long term returns institutional investors demand, which could be the key to unlocking the low carbon economy. We want to demonstrate the business case for low carbon property, encourage the wider property industry to follow suit and deliver both an economic and a carbon prize for the UK.”
Don Jordison, Managing Director, Threadneedle Property Investments said: “Of the £46bn in the Investment Property Databank Office Index over 90 percent is more than 10 years old and highly unlikely to be compliant with current or future carbon efficiency standards. Over the next 5 years 33 percent of all the leases in this space will expire and we believe a co-ordinated approach to address occupiers and investors needs can’t come a moment too soon.”
David Camp, CEO of Stanhope, said: “We believe that the timing is right both from an economic and a carbon challenge perspective to launch this fund. Not only is there money to be made in refurbishing existing building stock whilst there is a dearth of new development; but we also know from our own post-occupancy evaluation that occupiers, especially those who will be affected by the Carbon Reduction Commitment, are looking for more support in managing their carbon emissions.
The Carbon Trust has set up Low Carbon Workplace Ltd, a commercial enterprise that will contribute low carbon design advice for refurbishments, manage the Low Carbon Workplace accreditation and provide ongoing low-carbon assistance to occupiers. Threadneedle is the fund manager for the Threadneedle LCW Trust. Stanhope Plc will devise and deliver all the refurbishment work for LCW.
The refurbished low carbon properties could deliver up to 60 percent reduction in energy consumption and carbon emissions, significantly higher than conventional refurbishments. They will be highly efficient in use of space and make maximum use of cost effective low-carbon technologies such as insulation, natural daylight and fresh air, and state of the art building controls. Showers, changing rooms and bike storage will be standard.
 Over half (54percent) of commercial occupiers say it is very likely they would take a sustainable property at their next move. Two thirds said the CSR agenda was important or very important to their company. Energy efficiency is seen as the most important factor in a sustainable building. (Source: Corporate Real Estate Matters. Lambert Smith Hampton, May 2009)
 The low carbon opportunity is in refurbishment rather than new build. Around 60 percent of the non domestic buildings in use today will still be in use in 2050 (Source: Building the Future Today, The Carbon Trust, 2009). There are about four times as many commercial property refurbishments as new builds in the UK with annual refurbishment spend of around £2billion. (Source: AMA Market Research: Commercial Interior, Refurbishment and Fit-out market 2008-2012 (2008))
 The partnership has access to a large pool of properties: around 60 percent of UK office buildings are likely to be suitable for low carbon refurbishment and around 500 are available at any one time (Source: The Carbon Trust). They will be primarily buildings built between 1940 and 1980.
 The potential UK occupier market for low carbon properties has been identified as 1700 organisations employing 10 million people and representing between £300m and £1.1bn annual rental income (Source: The Carbon Trust)