Why green real estate is the way forward
Going green has gone from being a luxury option to a necessity for the global built environment sector today.
For cities around the world it has a key role to play in helping to cut their long-term carbon footprint. In Singapore, for example, the built environment is responsible for almost a quarter of our carbon emissions.
To reduce this we need to change not just the way buildings are constructed and run but also the perception of sustainability.
In the early stages of Singapore’s green building movement, green building practices were not perceived to offer any competitive advantage. However, today, we are seeing a shift in mindset with green buildings now regarded as a form of value creation for developers. Adding green building certifications such as Singapore’s Building and Construction Authority’s (BCA) Green Mark to a development’s list of credentials can help boost the developer’s corporate image and the prestige of such developments.
Singapore: A green work in progress
Such moves are driving rapid change. Over the past decade, Singapore has greened almost one-third of its building stock including improving energy and water efficiency, using eco-friendly construction material and creating healthier indoor space. It is well on track to achieving the target of greening 80 percent of all the buildings by 2030 to meet the standards set by the BCA Green Mark certification process.
Other cities can learn from the initiatives used to make progress. The Singapore government, for example, offers incentives for higher green building ratings. One of the most popular for developers is to obtain up to 2 percent additional Gross Floor Area when they achieve higher Green Mark ratings for new developments.
For older buildings, BCA also provides support to building owners to co-fund up to 50 percent of the energy efficiency retrofit cost. We’ve seen that retrofitted commercial buildings can benefit from an increase in their capital value of about 2 percent.
This is proof that profit and eco-consciousness can go hand-in-hand for green real estate.
The rise of green-minded tenants
It’s not just developers embracing sustainability; increasingly, green real estate is driven by tenants. Businesses which strongly advocate corporate social responsibility are increasingly expecting a better indoor environment, lower operating costs and enhanced market value for their spaces.
Once again, governments can help boost demand for sustainable buildings by extending green building certifications to tenants. In Singapore, the public sector champions this by leasing office spaces only from buildings which are at least certified Green Mark GoldPLUS. Public sector events are also required to be held in Green Mark-certified venues.
Real estate intermediaries are also stepping up to meet such demands. Through green leases and green facilities management, they now offer prospective building tenants a way to differentiate themselves by making a positive commitment to the environment, without undermining the viability of their business.
However, there’s a flipside to this as more buildings meet green standards, the additional value these currently provide is likely to decrease. To truly reflect the advantages offered by green buildings, more efforts by real estate appraisers will be required on how best to capture the value of green attributes.
All of this is just the start of a long-term sustainability commitment. The next challenge for cities is to ensure that green building practices are self-sustaining. A critical factor is to have a business environment that values green spaces and the people who created them.
Building for the future
Regulation will have huge impact on the future of green real estate around the world. Following the Paris agreement which came into force on 4 November 2016, sustainability regulations will become even more relevant to global real estate investors. For example, in the European Union, cities will be going beyond just greening buildings, to having net-zero buildings as a regulatory requirement.
Jurisdictions will also be created to mandate public disclosure of building energy use data, further intertwining energy use into decision-making on leasing and investment.
Stepping out of the “business as usual” approach may appear daunting, but with strong industry leadership and greater collaboration among all stakeholders, coupled with a forward-looking mandatory framework, the road to having “future-ready” green buildings and cities is a promising one.
Ang Kian Seng is the Group Director (Environmental Sustainability) at the Building and Construction Authority in Singapore. The BCA regulates the building and construction industry and administers the Green Mark scheme in Singapore.