Inclusive rent and its impact on energy efficiency investments

Transcription

1 Inclusive rent and its impact on energy efficiency investments Lovisa Högberg Dep. of Real Estate & Construction Management

2 Split incentives in the property market Who saves energy will not receive the energy cost savings Who invests in energy efficiency measures will not reap (all of) the benefits from the investment Incentive effects - Inclusive rent: tenant has no (economic) incentive to save energy - Introduce exclusive rent (with individual metering): the real estate owner looses incentives to improve energy efficiency of the building 2

3 The Swedish property market Type/owner m 2 (millions) SEK (billions) Stock listed firms Swedish institutions Foreign investors Private owners (rental housing) Municipal owners (rental housing) Government, municipalities, regions Industry Single-family homes Co-operative housing Holiday houses Agricultural and forestry Electricity production plants Sum Source: Lind & Lundström, 2009

4 The rental market For housing - Rent regulated - No traditional social housing municipal housing firms own ~60 billions m 2 (~ apartments) private owners own ~60 billions m 2 For premises - Market rent - ~135 billions m 2 Source: Lind & Lundström,

5 Lease structures in Sweden Rental housing - Dominated by inclusive rent Office - Higher share of inclusive rent - Shorter leases (4-5 years) Operation and maintenance costs as share of gross rent in 12 European countries in 2005 Source: Nordlund & Lundström, 2011; IPD 5

6 IPD Databank - Swedish lease structure 64 % of the leases included heating Excluding heating the tenant pays addition to rent for heating Excluding heating the tenant pays separately/direct to the provider Including heating 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% All Commercial leases Offices Retail & Restaurants Other commercial 9% 1% 35% 30% 46% 52% 57% 61% 61% 1% 11% 0% 3% 90% 3% 0% 4% 64% 59% 54% 40% 44% 39% 35% 0% % of rent passing % of number of leases % of rent passing % of number of leases % of rent passing % of number of leases 0% % of rent passing % of number of leases 2014 Investment Property Databank Ltd. All rights reserved. ipd.com

7 The concept of warm rent Inclusive rent / Gross lease - Landlord responsible for utility contracts - Rent includes costs for running media (heating, water) - Rent negotiations include utility costs based on past consumption - Utility costs split between tenants (template basis) - In practice, landlord limits consumption - Electricity and cooling usually separately metered and charged - Hot water sometimes charged separately 7

8 Complications The tenant has less/no incentives to save energy Third party (property manager) may split incentives even more 8

9 Complications (continued) Example: Stakeholders economic incentive to reduce utility costs Gross lease (except electricity invoice) Inclusive rent (not elecricity, cooling) and fixed payment contract with property manager Source: Bonde,

10 Why do most actors in the Swedish property market prefer inclusive rent? Gives incentive to care for buildings in the long run No transaction costs for metering and charging Problems with individual metering - Building characteristics differ - Energy prices change, volatile incentives - Tenant preferences - Reduced comfort and utility 10

11 Green leases a good complement? Aligns and creates common interest to save energy Create common goals and action plans through dialogue Landlord responsible for building performance Tenant given incentives through lease mechanism Both parties - responsible and accountable - initiate improvements - share costs and benefits Limit possible range of temperature 11

12 Questions? Thank you! Contact 12

13 References Bonde, Magnus (2012) "Difficulties in changing existing leases one explanation of the energy paradox?", Journal of Corporate Real Estate, Vol. 14 Iss: 1, pp Lind, Hans and Stellan Lundström (2011) Kommersiella fastigheter i samhällsbyggandet [Commercial real estate in the built environment], Kristianstad: SNS Förlag Nordlund, Bo and Stellan Lundström (2011) Chapter V Kommersiella fastigheter och finansiell stabilitet in Riksbankens utredning om risker på den svenska bostadsmarknaden [The Swedish Central Bank s examination of risks in the Swedish housing market], Sveriges Riksbank, Stockholm. IPD Nordic christina.gustafsson@ipd.com 13