Árima’s newly “greened” Guadalix logistics asset is delivering significant results for tenant, landlord and environment alike. The Madrid REIT is a good example of a landlord for whom the “green building revolution” is very much an opportunity, as opposed to the much-reported threat.
In 2021, Árima commissioned a project at the 25,000 m2 hub aimed at achieving significant cuts in energy usage. It is too soon after the refit to have a clear view of actual annual consumption (more below), but management talk about the project in glowing terms.
In the 2021 results slides, Árima gave some details of the project which centred around solar, sensor-controlled LED, insulation and a digital plant/machinery management system. The expected savings in energy usage were 40-60% and, as a result of the project, the tenant came up with process alterations which generated additional savings. From an ROI perspective, Àrima was able to renegotiate the rent upwards as a result, which was expected to generate a 10% return on the capex. So the project is a win for both tenant and landlord!
As we wrote in our last post on Árima, the Team are doing a superb job of generating alpha by turning mediocre, good-value assets into Grade A space with impeccable environmental credentials.
Their Botanic refurbishment project went from an E “calificación energética” to A, which implies an 80% reduction in CO2 emissions. In addition, maintaining the existing structure, as well as the materials used or recycled, significantly mitigated embedded carbon, which helped to earn the building a Platinum certificate from environmental standards organization LEED. A Gold WELL award from wellness certifier IWBI completed the accreditations, which will no doubt result in a premium rent when the building is let. The rent struck for Árima’s Habana building, whose LEED certificate was “only” gold, generates a yield-on-completion of 6%.
Meanwhile, the premium rent that green buildings command appears to be growing.
A recent study by MSCI showed that the average London/Paris premium commanded by offices with environmental ratings is around 30% and (in 2022) climbing. We don’t have the same data for Madrid but, judging from the rental uplifts Árima is securing on its refurbished assets, it’s hard to imagine that the trend there is significantly different
Sale-price gap between offices that have and
don’t have sustainability ratings
The shares have, along with many others at the smaller end of the spectrum, largely failed to participate in the real estate rally of recent months.
Having spent most of 2022 at the very tail end of sector performance numbers, the real estate sector has, since October recovered some of its poise. However, most of the action has been in the larger caps, and Árima, having held up better in last year’s slide, has tracked sideways. Looking at the longer-term chart, Árima has performed pretty much in line with the broader sector. Perhaps a disappointing outcome, for such an illustrious team, but events have conspired against the rapid deployment of capital. Despite evidence of exceptional alpha generation starting to come through, the shares now trade at a discount of more than 40% to the last reported NTA figure and, as we wrote in the last post, barring a spike in office yields, Árima is set to see a major revaluation of its portfolio – driven by rental uplifts on its refurbished assets.
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