Real Estate

Facts

092010

„Green buildings –destined for success“

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Imprint: Publisher and media owner: UniCredit Bank Austria AG http://www.bankaustria.atEditor: Bank Austria Real Estate Consulting & Investment, Karla Schestauber, Tel. +43 (0)50505-54784Layout: horvath grafik design

1 September 2010

A joint publication of Bank Austria Real Estate Research, Bank Austria Corporate Sustainability and Immobilien Rating GmbH (IRG)

Sources: This publication is based on our own research and research conducted by Immobilien Rating GmbH (IRG) as well as analysis of reports from variousinternational and national sources, press reports and statistical data which we consider reliable.

Disclaimer:Despite diligent research and the use of reliable sources, UniCredit Bank Austria AG assumes no responsibility or liability regarding the completenessand accuracy of the information herein. This publication shall not constitute a solicitation or an offer of solicitation, and shall not be construed as such.

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Sustainability and social responsibility areimportant for Bank Austria As a result of Bank Austria’s commitment to the goals of sus-tainability and corporate responsibility, all aspects of our busi-ness are subject to ongoing, critical analysis. Striking a balancebetween frequently conflicting environmental, business and so-cial considerations demands prudent, measured decisions.

Social and economic sustainability is not a question of achiev-ing a goal and then consolidating – it is a learning process thatresults in new ways of working. We are constantly looking to actresponsibly and ensure that our operations are economically,environmentally and socially sustainable. At Bank Austria corpo-rate sustainability means going beyond one-off measures, andturning sustainability into a guiding principle for all our commer-cial activities. It also entails developing services which satisfy arange of sustainability criteria.

We see the implementation of comprehensive environmentalmanagement systems as essential to ensure that the negativeenvironmental impact of our operations is kept to a minimum.This applies to our facility management and purchasing poli-cies, and to the information and communication technologieswhich are essential for a service provider like Bank Austria. Environmental responsibility also involves developing a serviceportfolio, including investment and financing products, whichsatisfies a range of sustainability criteria.

Bank Austria has defined a number of goals aimed at fightingclimate change – as a member of UniCredit, Bank Austria iscommitted to reducing the Group’s CO2 emissions by 30 per-cent by 2020. This objective affects many aspects of our busi-ness. Property construction and use are key factors when itcomes to mitigating the effects of climate change. Commercialproperty is one part of the business where appropriate meas-ures can promote the responsible use of natural resources,making this one of the bank’s key areas in terms of sustainabledevelopment.

We are committed to the principle of “green buildings”, not onlybecause we are convinced that this approach makes businesssense, but also because it enables us to contribute to a sustain-able economic development and to combat climate change.

Sustainable real estate generates competitiveadvantageSustainability and green building were originally pioneered by theresidential construction sector, but are now also coming to thefore in the commercial real estate market. Following the sharpincrease in oil prices and the resulting increase in heating costs,demand for alternative construction methods and energy sourceshas been growing. Government subsidies have concentrated onpromoting affordable living and energy efficiency. Besides costconsiderations, social factors such as health and well-being nowplay a vital role in government-subsidized residential constructionprojects.

Strong office, retail and logistics sector pressure for lower rentsis making energy-efficient properties which help to reduce oper-ating costs increasingly attractive. The strong feel-good factornormally attributed to sustainable properties – especially to offices – also makes them easier to let. Many international com-panies are now committed to renting space exclusively in greenbuildings, partly for marketing reasons. Real estate funds are increasingly investing in sustainable properties as a means ofraising the quality of their portfolios.

Defining sustainability and green building In September 2009 the Royal Institution of Chartered Surveyorspublished its Valuation Information Paper No. 13, Sustainabilityand commercial property valuation, which defines a wide rangeof criteria for valuing green buildings. These are primarily associ-ated with soft factors, in addition to standard matters such as

Sustainability and business success – a winning combination

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Oil price development

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total energy efficiency, the use of non-hazardous building materi-als, land use and floor area efficiency. Location, accessibility, environmental impact and integration into the public and masstransportation networks must all be factored into the valuation ofa property. For building materials, the use of environmentally-friendly raw materials, transportation and the resulting carbonfootprint all need to be considered. The paper also includes cor-porate social responsibility (CSR) as a key sustainability indicator.The term refers to the voluntary contribution of business to sus-tainable development, over and above any statutory requirements.

The report cites “green leases” – under which landlords and ten-ants agree to share the costs of sustainable investment and con-sequently both enjoy the benefits of the savings generated – asan example of sustainability at work in the field of property law.

Sustainable buildings – a major factor incombating climate change

Worldwide, real estate accounts for

17 % of fresh water consumption 25 % of timber consumption 33 % of CO2 emissions 40 % of material and energy use

Source: KPMG Advisory, U.S. Green Building Council

The idea that environmental protection is essential to cushion (if not to completely eradicate) the effects of continued climatechange is now virtually uncontested. Many countries have ambi-tious plans to reduce CO2 emissions. Urban areas have a key roleto play in achieving the EU’s sustainable development targets.Property heating and cooling systems account for around 30 – 40% of global CO2 emissions, and some 40 % of total EUenergy consumption is attributable to buildings. As a result, theEU is now taking steps to reduce energy consumption and pro-mote the use of renewables in the real estate sector. This in turnshould enhance security of energy supply and support the devel-opment of new technologies, both of which will help boost eco-nomic performance.

The European Energy Performance of Buildings Directive Directive 2010 / 31 / EU, also known as the Energy Performanceof Buildings Directive (EPBD), came into force on 8 July 2010.Under the directive, the member states are obliged to adopt and publish corresponding laws, regulations and administrativeprovisions by 9 July 2012. These measures should support theachievement of the Kyoto targets for reducing greenhouse gasemissions.

The Kyoto ProtocolThe Kyoto Protocol is a protocol to the 1992 United Frame-work Convention on Climate Change (UNFCCC), whose ultimate objective is to stabilise global greenhouse gasemissions at a level that would prevent dangerous human-induced interference with the climate system. Under Kyoto,the EU-15 has committed to reduce its overall emissions ofthe six greenhouse gases controlled by the Protocol to 8 %below the 1990 level by 2012. Each EU-15 Member Statehas an individual target set under a “burden-sharing” agree-ment.

Source: European Commission

Setting minimum energy efficiency standards for buildings andbuilding elements is a matter for the individual member states.These requirements should strike a “cost-optimal balance” betweenthe investments required and the energy costs saved over the lifecycle of a property. The member states also retain the right to im-plement stricter minimum standards. The directive also states thatthe member states should make provisions which allow them to review regularly their minimum energy performance requirementsfor buildings in the light of technical progress. Finally, the memberstates are required to draw up national plans for increasing theirstock of nearly zero-energy buildings, and regularly report thoseplans to the Commission.

Implementing the EPBD will serve to increase the number of energy-efficient, sustainable buildings in Europe. Although invest-ments in sustainability may not yet be reflected in significant increases in the market value of properties, over time conventionalreal estate will lose value compared with green buildings and eventually be squeezed out of the market.

Differences in building quality across the EU There are still striking differences across Europe in the quality ofreal estate in terms of sustainability. The majority of real estate development projects implemented over the past decade in CEEcountries such as Poland, the Czech Republic, Slovakia, Hungaryand Slovenia conform to western construction standards, and insome cases aspects of sustainability were also taken into account. However, in the boom phase of the EU’s eastward expansion up to2007 / 08, Southeast European countries such as Bulgaria, Romaniaand the successor states of former Yugoslavia saw a number ofproperty developments aimed primarily at creating sufficient spacefor retailers, office tenants, hotel operators and warehouses in theshortest possible time. The architectural and construction quality ofmany of these properties is poor, with designs that are not fit fortheir purposes. Western European shopping center designs in par-ticular were simply replicated in these new markets, without analyz-ing the users’ requirements at the planning and development stage.

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The most common international certificates are the US Leader-ship in Energy and Environmental Design (LEED) system andBREEAM, both of which are first-generation quality standards.However, both certificates are often criticized for their superficialevaluation criteria – second-generation environmental labelsprovide a more comprehensive assessment of key sustainabilityindicators. One such second-generation certificate is GermanSustainable Building Council (DGNB), which was the result of a private initiative – in addition to economic and ecological factors, it also considers social, technical and process-relatedaspects. The system also takes European norms into account,which enables international comparisons.

The majority of the green buildings which have been completedor are currently at the planning stage are office properties. Forthese, a longer lifespan is assumed. In addition, many interna-tional companies now rent space only in green buildings, whichhas also led to an increased demand for certification.

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However, these shortcomings also represent an opportunity for de-velopers. They can capitalize on the decline in land and constructioncosts resulting from the global financial crisis to construct greenbuildings, which can be offered at relatively low rental rates. Thesebuildings are going to be highly competitive.

Contrasts remain between minimum standards inEuropean building codesDifferences between the minimum construction standards definedin the various national building codes are another obstacle to com-paring the quality of real estate across Europe. Austrian buildingregulations have ensured that all properties constructed since 2008perform very well in terms of heating and cooling requirements.However, the standards in Eastern Europe are often much less strin-gent. The new EU standards should help to reduce such quality im-balances between the west and east European property markets.

Lack of comparability between certification systems There is no generally accepted definition of sustainability, and nouniform standards for evaluating it. Several countries around theworld have introduced certification systems designed to compareand assess the sustainability of real estate. About a dozen interna-tional and some 60 national sustainability evaluation and rating sys-tems have been implemented, as well as numerous national envi-ronmental labeling schemes. Comparison of environmental certifi-cates is not the only problem; some systems, such as the BuildingResearch Establishment Environmental Assessment Method(BREEAM) in the UK, apply different evaluation criteria for one andthe same label within a country.

Real Estate Facts

LEED-CanadaGreen Globes

PromisEEkoProfile

EcoEffect

EcoQuantum

Green Mark

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DGNB

ÖGNI

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CASBEE

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SBAT

BREEAM

LiderALEEDGreen Globes

Green StarNABERS

Source: KPMG Advisory

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Green buildings are highly competitive:

�We at Bank Austria are also dedicated to the principle ofsustainability in the commercial property sector.

�Green building is the way of the future – non-sustainableproperties will become less and less marketable.

�Buildings account for around 40 % of CO2 emissions in theEU. The EU’s Energy Performance of Buildings Directivecame into force on 8 July 2010. The directive requiresmember states to adopt and publish corresponding laws,regulations and administrative provisions within two years.This should support the achievement of the Kyoto targets.

�No uniform system for certifying green buildings is yetavailable. Older environmental labels such as LEED andBREEAM are the most widely used, second-generationsystems such as the German Sustainable Building Councilcertificate have incorporated more comprehensive envi-ronmental criteria.

�Property valuation specialists are working to develop anaccurate, standardized method for quantifying the incre-mental value generated by green building.

�Green buildings enjoy a more positive image and also gen-erate marketing benefits, as well as offering easier accessto grants and attractive financing packages.

�Building quality across the EU continues to vary widely.Southeastern European countries such as Romania, Bul-garia and the successor states of former Yugoslavia arelagging behind the rest of Europe in this respect. However,these shortcomings also represent an opportunity for developers to secure a competitive advantage. They cancapitalize on the decline in land and construction costs resulting from the global financial crisis to secure space for the construction of green buildings.

Sustainability – a worthwhile investment The difficulties of evaluating the profitability of sustainable proper-ties can also be traced back to the problems of data measurementand comparison. The competitive edge green properties enjoy is bynow undisputed. Although most investments in sustainable featuresrepresent medium to long-term decisions that take a building’s entire life cycle into account, they also raise property values in theshort term. Sustainable projects enjoy a more positive image andalso generate marketing benefits, as well as facilitating access togrants and attractive financing packages. Evaluations of existinggreen commercial buildings also contradict the widely held beliefthat investments in alternative energy sources only pay off in thelong run. Experience has shown that geothermal heating and cool-ing facilities usually pay for themselves in less than ten years.

Sustainability and real estate valuation Quantifying the incremental value of green buildings is still an inex-act science. This is because the property market is not a perfectmarket (no two buildings are identical) and there is a lack of ade-quate statistical information (small number of properties and limitedobservation period). However, there is no doubt about the competi-tive advantage in letting sustainable commercial properties owing totheir relatively low operating costs. In addition, net rent accounts fora larger proportion of total rent in green buildings than in thoseproperties where higher operating costs increase the burden of ex-pense on the tenant. The direct effect of proportionately increasednet rent is higher net income. Qualitative sustainability factors andthe ease of letting or selling green buildings can be factored into

risk assessments and earnings forecasts for real estate, and into cal-culations of the market value. Clearly, sustainability is already a keyconsideration in day-to-day property valuation, but the criteria areusually only taken into consideration on an individual property basis.

Academic research is currently focusing on the development of ratingand scoring models with generalized methods of incorporating sus-tainability criteria for individual properties. Systems which adjust thevalue of a property to reflect its energy efficiency rating or environ-mental certification would certainly be welcome. Unfortunately, apply-ing suitable valuation methods to individual buildings and introducinga uniform valuation system is currently impracticable and likely to remain so for the foreseeable future, given the imperfections of themarket.

Nonetheless, the incremental value of sustainability can be quantified– several empirical studies, for example by DEGI Research or KPMGAdvisory, have shown that the scope for increases in intrinsic valueand rental income for sustainable buildings is around 10 – 20 %.

Sustainability is also becoming an increasingly significant factor indetermining financing conditions, and many real estate funds are nowoffering sustainable portfolio products – as equity funds have beendoing for some time. This highlights the importance of sustainabilityfor the entire real estate sector, and confirms that awareness of andadherence to green construction principles are essential to the suc-cess of property development projects.

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Reference project: shopping mall Galleria Stara Zagora, Stara Zagora (Bulgaria) Globe Trade Centre (GTC), a Polish real estate developer with aproven track record in CEE, is currently finalizing its first shoppingmall project in Bulgaria. The project is backed by an A / B loan ofaround EUR 43m from the European Bank for Reconstruction andDevelopment (EBRD) as lead investor and Bank Austria. As the region’s first state-of-the-art shopping mall to be built to inter -national standards, the project is recognised at a flagship

development and has attracted a number of international tenants.Galleria Stara Zagora satisfies all the EBRD‘s environmental re-quirements, and has improved its energy efficiency thanks totechnical support from the bank. The EBRD is also involved in theconstruction of a new wastewater treatment plant which alsoprocesses water from the mall.

The Galleria development is located at a major road intersectionand is easily reached by public transport. The mall will also benefitfrom its proximity to Stara Zagora’s liveliest residential area andthe city center. The development site covers 12,500 m2 and themall includes some 25,000 m2 of lettable space, with parking for about 800 cars. The shopping mall will be opened at early November 2010.

Reference project: residential construction Pernerstorfergasse, Vienna The Wohnbauvereinigung für Privatangestellte (WBV-GPA), a non-profit housing developer, is currently building 108 new, subsidizedrental apartments with patios, balconies and verandas at Perner-storfergasse 83 in Vienna’s 10th district. The construction costs ofaround EUR 16m minus equity will be co-financed with the City ofVienna. The tenants have an option to buy their apartments after ten years. Completion is scheduled for late 2011.

The 2 – 5 room apartments range from 60 to 130 m2 in size. The extensive green spaces are an attractive focal point, and pro-vide an ideal location for recreation and relaxation. The developmentis situated close to Matzleinsdorferplatz with its excellent publictransport links.

Environmentally friendly, low-cost living comes courtesy of the latestpassive housing technology. An innovative ventilation system thatallows for individual room temperature control ensures pleasant living conditions.

Reference project: office and hotel DC Tower, Vienna Real estate developer Wiener Entwicklungsgesellschaft für denDonauraum AG (WED AG) – owned by a consortium of Austrianbanks and insurance companies headed by Bank Austria – is con-structing the 220-meter DC Tower designed by leading French ar-chitect Dominique Perrault. The total investment amounts to someEUR 300m. Completion of this new 60-floor landmark on the Viennaskyline is scheduled for the end of 2012, after construction worklasting only three years. This is WED’s fifth major development proj-ect, following on from the Andromeda Tower (1998), Ares Tower(2001), Tech Gate Vienna (2002/2005) and Saturn Tower (2004).

Some sustainable commercial real estate projects financedand co-financed by Bank Austria

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The majority of the DC Tower’s 72,700 m2 of usable space is in-tended for offices, but the building also features a four-star plushotel operated by the Spanish Sol Meliá chain on the 15 lowerfloors, and a rooftop restaurant.

The DC Tower combines eye-catching architectural design with thelatest in functionality and green construction methods. It is one ofthe first office blocks in Austria to be built and fitted out in line withthe EU Commission’s energy performance and sustainability stan-dards for green buildings. Moreover, DC Tower is set to earn gold orplatinum status under the LEED green building certification pro-gram.

Energy-saving technologies are a matter of course in the new com-plex. The possibility of including additional innovations – such asthe use of groundwater for cooling, rainwater management, solarand photovoltaic energy collection, and energy recovery from the elevators – are under examination. Potential heat recovery systemsare also under development.

Reference project: green office buildings in CEE Poleczki Business Park, Warsaw (Poland)

CA Immo and UBM have joined forces on a project to add around21,000 m2 of office, hotel, catering and warehouse space to the ex-isting 43,000 m2 of usable space at the Poleczki Business Park insouthern Warsaw. The property stands out for its ideal location closeto the city’s major access routes and Warsaw international airport.

Outstanding design, high-quality materials and energy-efficienttechnical installations were already the major priorities in the firstphase of construction.

For the second phase the aim is to secure LEED certification. Thiswill involve improving energy efficiency, minimizing emissions, mak-ing greater use of sustainable building materials and providing thestandardized construction documentation required.

Reference project: green office buildings in AustriaSOHO 2.0, Innsbruck In 2006 Planet Immobilien oversaw the construction of an officeblock in eastern Innsbruck. The main priorities for the project wereelegant design, high-quality architecture and creating an “office asa living space”. An additional office building, SOHO 2.0, is now atthe planning stage. This green development will be designed tohave a minimal impact on the environment, coupled with excellentenergy and resource efficiency.

SOHO 2.0 is a circular construction with a central four-floor atriumwhich serves as a heat exchanger, a focal point and a green oasisfor relaxation and contemplation. High-insulating glass will featureextensively in the building envelope to maximize the absorption ofsolar energy in winter. The projecting roofs around the entire build-ing and the centrally controlled shading system ensure that theproperty retains energy when required and that any residual energyis released. Sunlight can be blocked out to avoid overwarming. The key technological feature of the facade is the use of vegetationin the secondary building envelope – the supply of groundwater tothese areas is managed by the building control system. This naturalsource of shade complements the use of intelligent building tech-nologies.

The groundwater system also acts as a permanent source of low-cost, environmentally benign, preconditioned fresh air for all parts ofthe property. High indoor air quality has a measurable positive effecton health and creates a stronger feel-good factor among the usersof a building. The controlled ventilation system at SOHO 2.0 runsentirely on fresh air, without the addition of circulating air. Heatingand cooling is supplied via the groundwater system, and no fossilfuels are used.

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Authors:Bank Austria Immobilien Rating GmbH (IRG)

Real Estate Research Market ResearchKarla Schestauber Alexander BudaschTel: + 43 (0)50505-54784 Tel: + 43 (0)50601-51902karla.schestauber@unicreditgroup.at alexander.budasch@immobilienrating.at

Corporate SustainabilityFred LuksTel: + 43 (0)50505-50661fred.luks@unicreditgroup.at

Contacts:Real Estate Consulting and InvestmentKarin Schmidt-MitscherTel: + 43 (0)50505-54941karin.schmidt-mitscher@unicreditgroup.at

Franz UngerTel: + 43 (0)50505-56381franz.unger@unicreditgroup.at

Subsidised and SME Real EstateKarl EckerTel: + 43 (0)50505-52348karl.ecker@unicreditgroup.at

Günther NeuwirthTel: + 43 (0)50505-53263guenther.neuwirth@unicreditgroup.at

Commercial Real EstateGünter HofbauerTel: + 43 (0)50505-57488guenter.hofbauer@unicreditgroup.at

Werner ZimmelTel: + 43 (0)50505-62600werner.zimmel@unicreditgroup.at

International Real Estate FinanceAnton HöllerTel: + 43 (0)50505-55980anton.hoeller@unicreditgroup.at

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