The impact of climate change, energy costs, legislation and corporate social responsibility will create a two-tier property market between those who take it seriously and those who don’t, according to a report from King Sturge.

Its third European Property Sustainability Matters – Reduce, Reuse, Recycle report says climate change is now inevitable and the property market must prepare for the changes. The costs of insurance, litigation and energy are all rising. Legislation is also changing and property markets must adapt, it says.

“The impact of climate change, energy costs, legislation and CSR will result in a two-tier investment market,” the report says. “Grade A investment stock will increasingly reflect these four key issues.”

The report says that despite widespread failure to implement international treaties and European directives by governments “many businesses are beginning to realise that early action to reduce their contributions to climate change and other ‘sustainable’ issues is not only necessary, but can also be profitable”.

But it warns that most developers and investors are not future-proofing their financial decisions in the face of changing legislation and changing markets, or are taking a relaxed wait-and-see attitude. However, most do accept legislation may affect their portfolio’s value, while a minority group is now taking a more enlightened leadership role in the property market.

A key development is the growth of “carbon footprinting” – firms which assess their environmental impact by calculating their greenhouse gas emissions. “There is no gain in financial performance from ignoring the environment,” concludes the report. “Funds with larger carbon footprints do not produce higher returns.”

The report also notes there is a “vicious circle of blame” whereby investors, developers and occupiers pass responsibility for the slow provision of green buildings between each other.

http://www.kingsturge.com/resources/library/0/research/2006/01Nov/031120063451_pdf.pdf