Beware the Brown Discount – Why ESG is no longer a ‘nice to have’ but a necessity

5 Apr 2022
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Beware the Brown Discount – Why ESG is no longer a ‘nice to have’ but a necessity

Beware the Brown Discount

By Jonathan Trice, MRICS


There is nothing new in saying ESG (Environmental, Social and Governance) related issues are firmly on the corporate agenda. We are now in the positive position whereby most companies have a clearly defined ESG strategy. These include a focus on staff wellbeing through physical and mental health awareness, contributing to social and economic mobility and ambitious science-based sustainability targets.

Beware the Brown Discount

With this established, companies are now being challenged to implement these strategies. As tenants, these companies form the customer base for many landlords. So, as customer demands evolve, so must the product that is offered.

For occupiers, commercial real estate performs multiple functions. It houses staff, facilitates collaboration, aids with recruitment and, importantly, is a physical projection of the company’s brand and ethos. Recognising this, many landlords have now been through the phases of portfolio review and are now proactively improving their ESG offering.

This includes:

  • measurement and collection of data
  • new environmental and welfare certification
  • adoption of new technologies
  • changing operational practices
  • proactive approach to community engagement.


These are all reflective of evolving tenant demand criteria as well as the individual ambitions of the landlord or developer.

Environmental, Social & Governance (ESG)
Environmental, Social & Governance (ESG)

It is fair to say, however, some investors and markets are more advanced than others. This can largely be attributed to quantum and value of portfolio. Many landlords and developers are understandably focused on achieving a ‘Green Premium’ for money invested in ESG initiatives. In truth, this can be hard to extrapolate from other variables that also influence value.

As the market moves forward, the need for the built environment to contribute to the ESG focused agenda will become a necessity. As the bar continues to be pushed higher and higher, the definition of prime will ultimately shift, increasing risks around obsolescence.

The increasing capital cost of obsolescence will need to be reflected in cashflow, or at the point of sale as green focused investment and lending may impact liquidity. We see a very real risk around the value of assets that fall short of the benchmarks as their appeal to tenants or investors may decrease – i.e. a perceived ‘Brown Discount’.

We encourage investors not to look at ESG initiates as a ‘bolt on’ for their assets but a reflection of an approach to responsible investment, as well as a proactive approach to longer term risk management and asset resilience.

About Omega RE

Omega RE is commercial property advisory firm based on the South Coast. Providing expert advice to Landlords, Occupiers in the industrial, office and retail markets.

Omega RE is always thinking ‘Outside the Box’ in our advice to clients and the way we do business. We don’t settle for mediocre, we challenge the norm and are dedicated to finding solutions that is best for our clients.

We are a people business, based on strong relationships and partnerships, and we offer a personal level of service.

As the market evolves, we will too adapt to be successful and want the same for our clients. We are committed to finding innovative ways of marketing and how to do things more efficiently.

We will never stagnate.

We are disciplined in everything we do, we take time to understand the situation and set a bespoke strategy for each client. Not one size fits all. We do not cut corners or take short cuts and our integrity is undisputed.

Providing clients’ a hands on approach to finding the perfect property; office, industrial, warehouse or retail space to meet business needs and negotiating the best commercial lease terms, is what we do best.

We come to work because we’re passionate about providing expert, innovative, independent advice to clients. We want to help businesses navigate the complexities of Commercial Real Estate.

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