Recent EU regulations on sustainability and energy efficiency have led to the adoption of specific local incentives for buildings across many European cities. Last year, the City Council of Cluj-Napoca voted to provide a reduction to a minimum tax of 0.25% for companies owning buildings with a green certification and an energy certification. The research conducted by the Property Management team together with the Research Division of Colliers unveils the impact that a potential reduction in property taxes could have on the balance sheets of companies which activate on the Romanian market – both in the position of tenants and developers.
Taking into consideration the total leased stock of cities located in the countryside, the study concludes that tenants could save up to half a million euro (€500,000) annually per analyzed city if all class A office buildings were certified as green buildings (below). The amount represents the equivalent of cca.100 average yearly salaries per city.
“Cluj-Napoca became the first municipality in Romania to adopt specific measures for encouraging green building development and its initiative delivered a positive example across the nation, drawing attention towards the need for government incentives that would stimulate energy efficiency and green buildings. Besides the potential property tax reduction, green buildingsgenerate lower utility costs, higher rents, higher transaction prices, healthier and more productive building occupants, greater occupancy rates, plus free promotion and improved corporate image”, states Stefania Baldovinescu, Director of the Property Management team of Colliers International Romania.
The level of the property tax to be paid by landlords is established by each local council, between 0.25% and 1.5% of the inventory value of the building. The study takes into consideration the level of the property tax in five of the major business hubs in Romania.
According to market practice, in the case of leased properties, these costs are reflected in the service charge paid by each tenant, together with utilities, management fees, insurance. The service charge is to be paid by each tenant, directly proportional to the leased area. For office buildings, the average share of the property tax in the service charge is comprised between 35% and 50%, according to the table below.
In Cluj Napoca, for example, taking into consideration the total modern office stock of 46,000 m2 with a 10% vacancy rate, tenants within modern buildings pay over €600,000 each year as property tax. According to the new City Council measure, starting with 2013, the property tax will decrease to a minimum of 0.25% for certified green buildings. At city level, if all class A office buildings are certified as green buildings, tenant savings could reach the equivalent of the average wage paid yearly for 108 employees.
As for the owner perspective, a reduced property tax translates in significantly lower service charges, thus increasing the building’s attractiveness on the leasing market, while reducing their costs with vacant spaces.
With regards to owner-occupied buildings, the reduction in property tax has significant direct impact on the owner’s cash flows. For instance, a €20 million office building owner in Cluj Napoca can save €130,000 annually if the building is or becomes LEED, BREEAM or DGNB certified property. Moreover, in the case of a green building, operating costs and vacancy levels are lower and thus increasing the property value and ensuring competitiveness over time.
Encouraged by this action in Cluj-Napoca, many real estate professionals, including developers, investors and NGOs, argue that such public initiatives will help local businesses and professions to remain competitive as building and related energy standards increase across Europe and the world.
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