Sustainable buildings make sense for planet and business

A high-angle shot of private houses with solar panels on the roofs. [File, Standard]

Given the current economic and geopolitical outlook, it's understandable that many businesses are focusing on short-term cost control and business resilience.

However, they must not walk back from sustainability when it comes to real estate, where greenhouse gas emissions are at an all-time high.

For all the companies that have made commitments, it's now time to draw up a comprehensive roadmap to get real estate portfolios to net zero and start implementing it as soon as possible.

It's not just about limiting environmental damage caused by carbon emissions. Inaction today will result in much higher costs in the future.

For occupiers, the global energy crisis has already led to soaring costs to keep the power on in energy-inefficient buildings.

The new financial risks

Amid the ongoing uncertainty, no one knows when or if prices will return to previous levels. Cutting energy use must be a priority from both a sustainability and a cost viewpoint.

That's just the first step. We're now seeing forward-thinking companies move to renewable sources, whether investing in installing onsite solar panels to turn a variable cost into a fixed one - typically at a lower price or procuring renewable energy offsite.

For building owners, the stakes are getting higher for assets that fall behind the sustainability curve. Risks of not acting range from "brown discounts" - where a building without green credentials sees its value fall because it wouldn't meet a tenant's low-carbon targets - to more expensive financing for companies without robust decarbonisation plans.

It's early days on this front, but anecdotal evidence is mounting in multiple markets and the numbers will soon follow suit.

For forward-thinking owners and investors, there's still an opportunity for green premiums, where buildings with high-level green certifications command rents between 9 per cent and 28 per cent higher.

But such standards won't soon be a matter of choice with ever-tightening regulations on the horizon and industry shifting to think planet first.

With buildings accounting for more than 60 per cent of carbon emissions in cities, it's become a focus area for metropolitan governments.

Right now, most efforts are targeting new buildings, where it's relatively easier to enact rules around energy and emissions and issue fines to building owners whose properties don't comply.

Retrofitting in the spotlight

But a pivot to existing buildings is coming.

Already major global hubs like New York City, Tokyo and Berlin are setting limits on greenhouse gas emissions for buildings that already exist.

It's only a matter of time before more cities follow.

When it comes to boosting the supply of net zero buildings and accelerating the decarbonisation of real estate, retrofitting - investing in older buildings to meet both regulations and market expectations - offers the most potential.

With 80 per cent of office buildings in mature cities still set to be in use in 2050, the focus must be on addressing existing stock.

Even though we have most of the technology we need to decarbonise buildings, it still takes investment, time and expertise to carry out the necessary work.

On average, it costs 10 per cent to 20 per cent of assets under management (AUM) at a portfolio level to decarbonise, but it ranges widely at an asset level, partly because investments also have an upside and distilling green additional costs is hard to do.

Overall, a gloomy economic outlook, rising materials costs, supply chain issues, and uncertainty around locking in contractors are playing their part.

Still, we can't afford to wait. Cooperation between owners, tenants and governments will be key to success.

Landlords and tenants must collaborate to identify joint opportunities, share metrics and equally distribute the costs and benefits.