Going green makes business sense
Legislation, occupier preferences and stakeholder demands are pushing more firms to build sustainable real estate. By UMA SHANKARI
THE business case for developing sustainable real estate is just as strong - if not even more compelling - than the environmental argument, analysts say. Across the Asia-Pacific region, occupier preferences, stakeholder demands and government regulations have evolved, leading to a situation where it makes more business sense for developers to build sustainable real estate. The economic benefits also make the business case for going green more apparent now.
Perhaps the most compelling push comes from legislation to accelerate the use of green building practices, market watchers said.
'Legislation has played a significant shift in the way developers are 'greening' their properties,' said Eddie Wong, general manager of City Developments' projects division. City Developments is a pioneer of green building in Singapore. 'For instance, the Building and Construction Authority's (BCA) Green Mark was launched in 2005 as a voluntary initiative. It was made mandatory for new developments and buildings to be retrofitted in April 2008. This is a clear signal from the government that developers must develop properties with sustainability in mind. The government has also encouraged the adoption of green technology through various incentives and grants.'
The official push seems to have paid off. This year, BCA handed out a whopping 159 awards at its annual BCA Awards, which the industry regulator says is an indicator of the construction industry's growing commitment to a greater contribution to the economy and the built environment.
Other countries are also going down the legislative route. China said in June last year that developers participating in renewal projects will be required to save energy and water, use environmentally friendly building materials, increase green areas and reduce construction waste, among other things. Hong Kong also said in October last year that legislation would be introduced to make it mandatory for all new government buildings to be energy efficient.
But while such policies and incentives have the impact of raising awareness and encouraging adoption of green buildings and sustainability, the general consensus from the private sector in Asia is that more financial incentives and other financially-oriented assistance will be more effective, said Richie Lee, executive director for energy and sustainability with CB Richard Ellis (CBRE) Asia. He also suggested that there should be penalties against non-compliance. This can help to move things along, he said.
Other than legislation, occupier preferences and stakeholder demands are also pushing more companies to look into developing or owning sustainable real estate. 'Large MNCs have been observed to demand green features when looking for office space,' noted Dr Lee.
A global survey on corporate real estate and sustainability by CoreNet Global and Jones Lang LaSalle late last year showed that corporate real estate executives are more willing to invest in the sustainability of the space they own in spite of economic pressures.
The survey found that 89 per cent of these executives across the globe consider sustainability criteria in their location decisions. Green building certifications are always considered by 41 per cent and energy labels by 46 per cent in administering their portfolio.
More stakeholders are also now beginning to take a more holistic approach to doing business, which means that they factor in the social and environment effects of their business decisions. This means that developers and other corporations with a 'green' portfolio will draw more shareholder interest.
'Many global investors have become more vigorous in assessing businesses based on the triple bottom line - economic, environmental and social. Forward-looking companies, in particular those targeting international investors, will have to respond to the call for increased corporate social responsibility and disclosure,' noted Mr Wong.
But the main drawback to developing sustainable real estate appears to be the higher cost. Developers and analysts say that building a green building can cost anywhere from 2-5 per cent more.
Right now, the cost of implementing green technologies in buildings is still much higher than traditional building infrastructure where fossil fuel or natural gas generated energy is used. Energy savings alone are currently not able to compensate for the cost of green infrastructure such as photovoltaic panels or wind generators. In Singapore, the incentive schemes introduced by the government have helped to defray some of these costs so far.
In addition, developers are also unlikely to recoup the higher cost from occupiers, who are still resistant to paying more in rents.
CoreNet Global and Jones Lang LaSalle's survey last year found that respondents remain reluctant to pay premium rent for leased 'green' space without some form of payback. Only 37 per cent would consider paying a premium of one per cent to 10 per cent. Another 34 per cent expect to pay the same while 8 per cent expect to even pay less for sustainable space. In addition, 21 per cent of respondents indicated that they would only be willing to pay a premium if it was offset by lower operating costs.
Being in a green building is 'nice to have', said Chua Chor Hoon, head of DTZ's South-east Asia research team. But it all boils down to dollars and cents for most end-users - especially local ones - when considering space alternatives, she said. 'To justify the higher cost in the long run, there must be benefits to the end-users and landlords such that the maintenance costs are lower which will then compensate for the higher fixed rent.'
'Hence, developers should consider adopting green features that will make a significant difference to operating costs or result in savings or useful benefits to end-users, rather than introduce green features for the sake of qualifying for the Green Mark awards.'
Costs can be reduced with proper planning and management at every stage of the design process, industry players said. They are also hopeful that in time, with advances in technology, the cost of implementing green technologies in buildings will fall.
'There is still the general perception that green buildings are more costly than non-green buildings. In actual fact, it all depends on the designers, engineers, architects and builders,' CBRE's Dr Lee said. 'Some green buildings cost significantly more to build than others, just like there are more expensive and cheaper non-green buildings.'
Capable designers, engineers, architects and builders are now able to come up with green buildings that are not that much more expensive than a comparable non-green building, he said. And about five years from now, it would be possible to come up with a green building that could even cost less than a non-green building, Dr Lee added.
Lee Eng Lock, Trane's technical energy director for Asia energy services, said that smart development almost always costs less unless money is squandered on 'sexy' items - such as solar photo voltaic (which typically have a 40-year payback) or expensive computer modelling (which does not reflect reality and only affects a small percentage of the energy usage). 'The solution lies in proper design which is tested and measured and proven, not in the ultra-expensive airy fairy technologies which take many decades to pay back, if ever,' he said.
Ms Chua also said that when more developers jump on board the 'green' wagon, there will be more economies of scale which will then reduce the cost of green features.
And while energy savings might not be able to offset the higher cost of building, developers and tenants can reap other financial benefits such as water savings and a possible increase in the property's valuation in the longer term. And there are other benefits such as an improved corporate reputation and better occupant health and comfort - which can also lead to long-term financial benefits.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Reflection of society's concerns: Trane retrofitted The Galen Building (above) last year. It was the first existing industrial building to get a BCA Platinum Green Mark award
Posts
No comments:
Post a Comment