Demand for green buildings

Demand for green buildings

Real Estate developers are gradually recognising the importance of green buildings in enhancing tenant attraction. Both tenants and property owners have started including elements of sustainability in leases. Commonly referred to as green leases, they include an upfront establishment of sustainability goals and allocation of implementation responsibilities between the owner and the tenant.

The challenge here is inclusion of clauses to deal with non-compliance on either side, which is yet to become a common practice.

Also, it is relatively easier for landlords and tenants to include green features in new leases than it is to retrofit them into existing leases or renewals. The large publicly traded retail tenants are the ones that are forcing more sustainable features in buildings and more efficient management. 

Sustainability is becoming an important influencer in the design of overall business strategy of tenants. According to a 2013 United Nations Global Compact’s Global Corporate Sustainability report, approximately 63% of the respondents are aligning their core business strategy to advance their sustainability goals.  For this, real estate developers, on their part, need to keep pace with tenants’ green demand, with respect to both existing and new leases. Increase in tenant collaboration will likely result in improved satisfaction and subsequently retention.

In lieu of an effort to do more with fewer resources, tenants are becoming increasingly efficient about usage, which expands from the physical space (square footage) to its utility. They are re-evaluating their physical space to save costs and also enhance the softer benefits at the workplace.

Leading African businesses, and multinational organisations are now shifting their thinking from “how much will green building cost my business” to “how much will not investing in green building cost my business.”

While determining this, companies are considering the positive impact of sustainability measures on employee absenteeism, productivity, and well-being. Certain design attributes of a green office building enhance occupant health and well-being, therefore resulting in healthier, happier, more satisfied, and ultimately more productive workers.

Further, tenants want to meet their corporate environmental and social responsibility goals. For this, tenants need to track, measure, and include data related to utilities consumed in their leased spaces. Hence, leasing decisions are increasingly influenced by green building features that result in improved productivity and investor interest and are effectively tracked and measured.

According to the Global Real Estate Sustainability Benchmark (GRESB), investors are increasing their focus on integrating real sustainable practices into their existing and new investments due to the favourable impact of sustainable factors on both risk and returns.

Investors are setting goals to improve the environmental performance across their portfolios through lower carbon emissions, improved energy efficiency, better utilisation of water and other resources, and superior waste management. To effectively pursue and achieve these goals, investors encourage companies to increase transparency and effectively disclose information related to sustainability performance.

In summary, with tenants’ business performance increasingly evaluated on a non-financial basis — not just by their customers, but also by investors — the focus on sustainability implementation and measurement of leased space is only going to increase.

We believe it is only a matter of time before sustainability implementation and compliance requirements are made more stringent across various nations and geographies