Do green buildings command a higher price per square foot?
It is now a given in the Asian building and real estate development industry that green is in.
Several studies have underscored the facts: people living and working in green buildings are less sick; the buildings themselves consume less energy and have lower carbon footprints. Green buildings are responsible members of local communities as they consume lesser resources and emit fewer pollutants. But what are the benefits of going green to developers and building owners?
Business Benefits of Going Green
Do green buildings lease up better than other buildings in Asia?
A 2009 study by Jones Lang LeSalle shows that 60 percent of Corporate Real Estate (CRE) renters in the Asia Pacific region are willing to pay up to 10 percent more rent to occupy a sustainable building. In fact, 65 percent of respondents opined that sustainability is a critical criterion when renting buildings. Studies by CB Richard Ellis in Australia found that developers of green buildings can achieve higher values and garner higher rents than non-green constructions. Occupancy rates were found to be higher as well. A report by Responsible Research Pte Ltd a higher rental yield of 3% per square foot (6% effective rent) for green buildings in Asia.
Popular reasons for this shift in trend include tenants of green buildings reporting improvements in health, productivity and overall satisfaction of living and working in the buildings. Employee satisfaction and a healthier working environment certainly drive employers to seek green buildings and initiate sustainable practices in their office campuses.
Drivers of Sustainability Practices
The public perception of sustainability and environmentally friendly practices has undergone a radical change in the last decade and a half – going “green” is no longer just a fringe concern for many people and companies. It is now a mainstream effort while renting and purchasing real estate. This is a key driver of demand for sustainable buildings.
Beyond the eminent sense that renting a sustainable building makes, it also makes plain business sense for CRE renters: occupants are more productive and operational costs are lower with green buildings.
Going green is not just a concern for new construction. Retrofitting existing buildings to make them “greener” and more sustainable is a key trend in Asia. At the Internal Green Business Conference 2011 in Singapore, findings presented of an industry-government-academia joint study of green buildings in Singapore reported that commercial buildings can potentially see an increase of 2 percent in their value by retrofitting for sustainability. Operating expenses of green buildings are lowered by as much as as 10 percent.
Green has gone from a “push” scenario – regulations, mandatory certifications and Corporate Social Responsibility (CSR) initiatives – to a “pull” environment of market demand across much of Asia. With more “cities of the future” being built and expanding across Asia, developers and real estate investors are better served by taking note of this trend.
The bottom line? Green buildings do lease up and fetch higher rents than their non-green counterparts.
Jones Lang Le Salle India, “60 Percent of Asia Pacific Companies Willing to Pay a Premium Rent to Occupy Sustainable Space, Despite Tighter Economic Environment”, http://www.joneslanglasalle.co.in/India/EN-GB/Pages/NewsItem.aspx?ItemID=9114, 2009; Copies of the report available at http://www.joneslanglasalle.co.in/pages/sustainabilityresearch.aspx
Angie Ng, “Demand for green buildings on the rise”, http://biz.thestar.com.my/news/story.asp?file=/2010/12/25/business/7646434&sec=business, The Star (Malaysia), December 2010
Author Unknown, “Green Building in Asia Report”, http://www.asria.org/events/singapore/cdf/Rebecca%20Lewis,%20Responsible%20Investment%20Analyst,%20Responsible%20Research.pdf, Responsible Research Pte Ltd, 2010
BEX Asia 2012 Media reports (source: Business Times), “Green buildings make value propositions”, http://www.bex-asia.com/en/News–Media/Green-buildings-make-value-propositions/, December 2011
Jessica Cheam, “Green buildings a ‘retrovestment’”, http://www.eco-business.com/opinion/greening-buildings-a-retrovestment/, Eco-Business.com, September 2011