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Building the Green Way: Opportunities in Green Building Development

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The built environment plays an important role in our everyday lives and the notion of sustainability in building assets are often overlooked.

In emerging economies, the building cost is the biggest underlying factor as to why the green movement is often being deferred and questions regarding with market structure, asset efficiency and its effect on asset values usually comes to consideration in justifying the need to cut these costs. However, in this time of uncertainty, we may be seeing a resurgence of sustainable building trends in the upcoming developments as developers and investors respond to opportunities presented to them from an investment property level.

Green Building Market from a Global Perspective

According to the International Finance Corporation (IFC), the floor area of the global building sector is anticipated to double by 2060 and most of the construction will occur in emerging markets particularly in middle-income countries experiencing high population growth, rapid urbanization and income growth.

Global investments in sustainable buildings accounted for USD423 billion of the USD5 trillion spent on building construction and renovation in 2017 with almost USD18 trillion of investment opportunities lying in the emerging markets of South and East Asia as each execute their development goals and grow their secondary markets and megacities.

New construction offers a significant opportunity to integrate sustainable strategies in building design from the project inception, helping to maximize the financial benefits that come from sustainability savings and avoid the need for costly retrofit. Building developers that do not build green may find themselves at a disadvantage as they may experience probable slower sales times, lower sales prices, lower occupancy rates and a loss of market share.

Green Buildings Perform Better than Conventional Buildings

Green buildings are more efficient than traditional buildings and may lower operating costs, increase revenues, and reduce exposure to the physical and transition risks presented by climate change and pandemics. These factors may increase the valuation of green buildings, making them stronger credit assets and better collateral. Data from IFC articulates that green commercial buildings have recorded operating costs of between 18% to 37% lower than traditional buildings.

Buildings that can incorporate recycling may reduce waste output by 90% and use 30% less energy equating to a 5% increase in net operating income compared to traditional buildings. Also, the use of technologies may prolong a longer anticipated lifespan and more durable components, reducing maintenance cost in the long-term as conventional buildings, due to its faster deteriorating nature, will become subject to legal action and fines as all sorts of depreciation will come up, making it more expensive to operate and insure. Such buildings may be more difficult to lease and sell or may face premature termination of leases if tenants seek to move to more efficient buildings.

In addition, owners of non-green buildings may have to sell their property at a discount or pay for costly retrofits to meet new, stricter requirements or to be competitive in the market.

Green Buildings Add Value to Building Assets

Investors and financiers hold a tremendous influence in shaping and accelerating the process of a capital-intensive asset transaction to sustainable construction. This shift will help take advantage of the significant sustainable building investment opportunity and build a stronger real estate investment portfolio resilient to financial, regulatory and reputational risks associated with public health and the transition to low-carbon economies.

Building valuations of green properties tends to be higher, an increase of 6.6% in some assets, because of its intrinsic characteristics these assets hold, resulting in lower operating costs and higher occupancy rates and rental income compared to traditional buildings. The valuation of green buildings may increase further because they avoid the increasing likelihood of penalties imposed on carbon emissions, as this is a growing trend in the global market, avoiding transitionary risks, making green buildings a better credit risk asset and better collateral with its high-value, low-risk asset profile.

Colliers View

As the market matures with better building policies and financial products such as ‘green loans’ and ‘green portfolios’, we are going to see a shift to an adaptation of sustainable building construction as it takes the lead to a transition towards the built environment. While new building constructions will have an opportunity to shape the future through modern technology and the improved of technical expertise, we encourage existing building owners to implement basic sustainable strategies and take advantage of the benefits of a well-rounded effective building as our recommendations are as follows:

  • Maximize the building orientation by exposing windows in the northern side of the building and having less windows in the narrow portions of the building facing the eastern and western sun. This allows for maximum daylight with less heat penetration as the building is protected from the western sun.
  • Allow for natural daylighting by using design techniques such as ‘light shelving’ to allow light to bounce from a reflection and penetrate the deeper parts of the structure to reduce reliance on artificial lighting.
  • Allow for cross-ventilation for maximum air flow to penetrate through the building. This is done by positioning window openings through the north-east and south-west direction.
  • Consider using vegetation such as green walls and indoor landscaping to have a better control of the interior microclimate, resulting to a decrease in energy requirements.
  • Use white roof finishes and green roofing to mitigate heat island effect.
  • Use solar-protection strategies such as brise-soleil, solar shades and low-e glass coating to protect the building interior from heat penetration and strong sunlight.
  • Consider at least a floor-to-ceiling height of 3 meters to achieve good indoor air quality.
  • Consider a workplace density of 9.3 sqm per person for traditional office occupiers and 8.5 sqm per person for BPOs.
  • Consider VRFs over centralized air-conditioning for flexibility of energy usage and achieve an optimal room temperature of 24 degrees Celsius for temperature efficiency.