Green buildings command a higher premium
Seven in 10 companies in Asia-Pacific willing to pay higher rent
By Joseph Wong firstname.lastname@example.org
The acknowledgement of climate change has brought about a wave of green buildings. While progress in the adoption of green practices was initially slow, it has picked up speed with many developers and owners moving on to greener pastures, so to speak.
Amusingly, it was once thought that sustainable real estate was just an expensive fad, but it is time to get acquainted with the current work dynamics of the corporate world. Sustainability has gone mainstream now and real estate is at the core of it all. Admittedly, the cost of developing such properties has a higher initial capital outlay but the savings that can be reaped in the long run offset the additional expenditure.
Most owners and property developers can mitigate the increasing energy cost by as much as 50% while improving the indoor air quality (IAQ) of their properties by incorporating energy recovery ventilators (ERVs). The increasing cost of electricity and the deteriorating IAQ provides a timely impetus for building owners to incorporate ERV to offset the effect of the steep electricity hikes while enhancing productivity, promoting the health of the buildings and their occupants and gaining significant savings in the cost of building operations and maintenance.
Green features include rain-water harvesting and greywater recycling, energy-efficient airconditioning units and lighting, and occupancysensing smart applications like automatic switchoffs when no one is utilising the rooms, among others. While incorporating such systems, developers and architects take a giant step towards achieving Green Building status for their properties.
On an investment level, this shift works to their advantage. Corporate occupiers’ commitment to double net-zero adoption by 2025 have prompted 50% of investors to prioritise green-certified real estate, according to The JLL Asia-Pacific Sustainable Real Estate: From Ambitions to Actions Report. Findings reveal that a majority of over 70% of Asia-Pacific corporations are willing to pay a rental premium to lease sustainability-certified buildings in the future.
This commitment aligns with broader real estate sustainability developments across Asia-Pacific where 40% of corporate occupiers have already adopted netzero targets and another 40% are planning to adopt targets by 2025. The regional real estate decarbonisation drive is also prompting 80% of corporate occupiers to prioritise locations that help them reduce carbon emissions, while 65% of investors will focus more on green building investments.
What’s a green building?
According to the World Green Building Council, a green building is one that, in its design, construction or operation, reduces or eliminates negative impacts and can create a positive impact on our climate and natural environment. Green building refers to both the structure as well as the application of processes that promote efficient use of energy, water and other resources while reducing the building’s impact on human health and the environment during the building’s lifecycle, from planning to design, construction, operation, maintenance, renovation and demolition.
There is a consensus that environmental impact has the potential to adversely affect businesses in the long run. There is recognition of strong value creation through green strategies, green certifications and operational efficiency that can boost the attractiveness of premium real estate assets. Even though many corporations recognise the importance of sustainability, evidence suggests that more can be done to translate the commitments into tangible actions.
The JLL Asia-Pacific Sustainable Real Estate: From Ambitions to Actions Report that surveyed over 550 corporate real estate leaders revealed interesting insights. The report was based on an online study of 478 occupiers and 76 investors from multiple countries across the Asia-Pacific region, with a strong emphasis on Australia, China, India, Japan and Singapore.
Respondents were asked questions to determine the position of their sustainability maturity journey. Approximately 90% of companies in AsiaPacific agree that tackling emissions from real estate is essential in achieving a netzero carbon agenda – signalling a new era in regional real estate portfolio leasing and investment. For corporate occupiers who currently lease space in a green building, the majority are paying a rental premium of 7-10%, providing a benchmark for future sustainable leasing trends, according to JLL.
“For companies operating in Asia-Pacific, any meaningful reduction in carbon footprint is tied directly to real estate. Corporate occupiers will increasingly demand real estate solutions that complement their sustainability agenda. This will lead investors to prioritise green investments, propelling the real estate industry transformation towards future-ready green buildings,” said JLL Apac chief executive officer Anthony Couse.
“As the Joint Exclusive Leasing Agent of the soon-to-be-completed Merdeka 118 tower, not only is it the newest icon in Kuala Lumpur’s skyline but it will also be the tallest building in Southeast Asia. Aligned with JLL’s sustainability ambition to shape the future of real estate for a better world, the Merdeka 118 tower will be the first tower to achieve Platinum Accreditation in all three categories for Leed, GreenRE and GBI,” said JLL Property Services (M) Sdn Bhd country head YY Lau.
“In addition, the building is also the first in Malaysia to achieve the Well Platinum Certification,” added Lau. “Recognising the urgency and importance of sustainability, the Merdeka 118 tower accelerates the pace of sustainability with features such as high-performance façade glazing, smart air recycling, grey water storage and reuse, solar panels, site-wide material recycling and more,” she said.
The survey provides a comprehensive view of organisations’ sustainability journeys, with only a handful of corporate occupiers (21%) and investors (26%) identified as leading in their category within the survey – defined by the strength of their sustainability goals that will move the needle on their carbon emissions reduction targets – scoring more than 71 out of 100 total possible points. This indicates that a large majority of organisations need to do more to translate commitments to tangible actions. For instance, only 36% of occupiers have pledged to act on emissions that come from their suppliers and customers, in addition to their own operations, according to JLL data.
Strong commitments needed
While firmer commitments from companies are necessary to accelerate the net-zero carbon ambitions, organisations have identified several barriers to achieving their sustainable real estate goals. Net-zero has become a new buzzword in the business world and a lofty goal, serving as a new driver for corporate sustainability. This is especially with the realisation that a low-carbon economy is good for the environment and beneficial to the corporate bottom line.
However, the question is how rigorous are businesses at implementing actions to help them achieve their targets? Approximately 70% of occupiers report a lack of incentives from governments and support from landlords. Additionally, three out of four companies surveyed identified insufficient technological infrastructure as a hurdle to reaching their environmental goals.
“Across Asia-Pacific, society is shifting towards an emphasis on green and sustainable spaces in a bid to address the concerns on climate risk, and companies are willing to pay a premium to meet new demands,” commented JLL AsiaPacific chief research officer Roddy Allan.
“There is now a heightened responsibility among businesses to take demonstrable actions with their commercial real estate portfolio, which will increasingly rely on partnership between occupiers and investors to translate sustainability ambitions into actions,” he said.
Sustainability has become a dominant global economic risk with the power to transform business, industry and society, said the JLL report. “Real estate holds many of the solutions to alleviate sustainability concerns and addressing real estate can have a huge impact on reducing greenhouse gas emissions,” it said.
At the end of the day, an ecosystem of partnerships will be necessary to accelerate the transformation and deploy a robust roadmap to meet sustainability targets. The drive to decarbonise the built environment needs to shift beyond traditional boundaries and bring investors, occupiers and cities together to work towards common sustainable targets.
How to accelerate the pace of sustainability?
Organisational alignment on sustainability
Leveraging real estate to deliver on the sustainability agenda
Source: JLL Asia-Pacific Sustainable Real Estate: From Ambitions to Actions Report