Building efficiency

06/08/2018

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​Ainslie McLennan, Co-Manager of the Janus Henderson UK Property PAIF, discusses the importance of a sustainable approach to investing in the UK commercial property market.

The Minimum Energy Efficiency Standards (MEES) legislation, evolving expectations from tenants and investors, and an increasing awareness of the link between wellbeing and productivity have all contributed towards the case for investment in sustainability within the UK commercial property market.

Measuring efficiency

According to the 2017 Property Data Report, UK commercial property accounts for around 10% of the UK’s energy consumption, while 12% of the UK’s CO2 emissions can be attributed to commercial buildings. Similar to domestic consumer appliances such as fridges and washing machines, buildings have energy performance certificates (EPCs). Since 1 April 2018, MEES regulation means that landlords in England and Wales cannot let a commercial (or residential) property with an EPC rating of F or G, unless the building has specific exemptions. These lowest two grades account for around 17.5% of commercial property space in England and Wales according to the Real Estate Climate Risk Report 2017.

Energy efficient buildings are more attractive to tenants and are at lower risk of obsolescence. We have therefore set a 2030 target to achieve a 30% reduction of the energy intensity of properties owned by the fund, based on a 2015 baseline. Some of our tenants have their own minimum EPC requirements for commercial space, and sustainability ratings are now an expectation for investment grade new-build properties.

Benefits for all stakeholders

Since 2011 we have included ‘green’ clauses in all new leases signed in the UK, in line with the Better Building Partnership industry guidelines. We continue to focus on improving the efficiency of lighting in our buildings through installing sensors, timers and alternative lamps such as LEDs, as well as increasing electric vehicle charging points, installing solar panels and enhancing recycling zones.

We also take every feasible opportunity to improve the efficiency of heating and cooling equipment, and to ensure that the building management systems controlling it are functioning properly. Improved contracts with suppliers have also been signed, enabling us as landlords to recycle more waste on-and off-site. A sustainable approach should help reduce vacancy rates and obsolescence by attracting a higher-quality tenant on long leases while paying a rental premium, which is ultimately passed on to investors.

Integrating sustainability into asset management

We are implementing smart building technology (sensors and controls) across the fund. This low-cost solution delivers excellent value for tenants, saving them money while also reducing the carbon emissions of our assets.

One of the first buildings for deployment was Bermondsey Square, London, where the installation led to a 35% reduction in electricity consumption in the first six months of use.



Integrating sustainability into acquisitions

Sustainability risks and opportunities are always assessed at the point of acquisition. In 2013 the fund acquired a JCB distribution centre in Stoke-on-Trent, which was the first logistics building in the world to receive an outstanding BREEAM rating, a leading sustainability assessment method for buildings. Some of the onsite renewable energy features of the building include:




Glossary

BREEAM - Building Research Establishment Environmental Assessment Method

 

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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Important information

Please read the following important information regarding funds related to this article.

Janus Henderson UK Property PAIF

Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • This Fund is dual priced. The price at which you buy shares/units in the fund will incorporate the transaction costs incurred in buying physical properties. When you sell shares/units in the Fund the price you sell at incorporates the transaction costs incurred in selling physical properties. The difference between these prices is called the ‘spread'. This spread is currently c. 5% and reflects the high transaction costs of buying and selling commercial property. Typically the buying price of an individual commercial property can be 7-8% higher than the selling price. The spread of the Fund is not fixed and may vary over time depending on the composition of the Fund.
  • Some or all of the Annual Management Charge and other costs of the Fund may be taken from capital, which may erode capital or reduce potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund contains assets which may be hard to value or sell at the time and price intended. In particular, property investments may take a considerable time to sell. When many investors want to sell their shares, the Fund may have to delay processing requests so that certain assets or properties can be sold first. This is known as deferring redemptions.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Valuations are determined by independent property experts. The valuation of property is generally a matter of valuer's opinion. The amount raised when a property is sold may be less than the valuation.
  • Tenants in the Fund's properties may become unable to pay their rent. As a result, the Fund's income may be impacted and further costs incurred.

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