_Beyond Green-Certified Buildings: 3 Insights and Takeaways
1. Low energy commitments by both owners and occupiers will be next...
Knight Frank Research
The highest graded green certified buildings today are also among the newest buildings with the latest specifications, achieving around 30% in rental premium over older uncertified buildings. Likewise older buildings that go through asset enhancement and attain higher certification such as Gold-Plus or Platinum grades also command a rental premium over uncertified buildings. In summary, while the green certification grade of a building does appear to influence rent levels, the premium is seemingly weighted on whether the building is a new build with better specifications.
Highest graded green buildings make up 58% of certified stock
Source: BCA, Knight Frank Research, data as of 2023
While green certification of buildings in Singapore is legislated, the push for low energy certification is gaining momentum with a national target to hit 80% improvement in energy efficiency from 2005 levels for best-in-class green buildings by 2030. As the total energy count of a building includes the consumption by both occupiers and common areas and services of the building, we can expect to see the rise in green leases where building occupiers and owners agree on energy consumption commitments and / or milestones.
Clearly the ESG evolution in corporate real estate is unabating and with green certified buildings in Singapore constituting over 80% by gross floor area, occupiers have a ready green base to build on their ESG goals with initiatives such as designing sustainability at their workplaces. The good news is that the increasing demand for sustainability solutions will increasingly lower the cost of occupiers attaining green workplaces.
2. Attracting and retaining talents is the top ESG driver...
ESG Singapore Occupier Survey
Of the ESG drivers influencing office space selection among respondents with a local Singapore purview, “Social” factors such as end-of-trip facilities, community spaces and walkability ranked the highest followed by "Environmental" factors, with 81% ranking "Social" as important against 70% for "Environmental" factors such as indoor air quality, recycling, electric vehicle charging, renewable energy, climate resilience measures, and biodiversity provisions. The Social factors taking precedence over Environmental factors could be attributed to 80% of office gross floor area of Singapore’s stock being already green certified and addressing the “Environmental” factors.
Aligned with the higher focus on “Social” factors, Attracting and Retaining Talents as a driver of ESG initiatives scored 98% in total with 64% scoring as an important driver. While Corporate Image scored 98% in total as well, a lower 38% scored as an important driver. Corporate Net Zero Carbon Reduction Targets scored 80% as a driver with 36% scoring as an important driver. Attracting and Retaining Talents scoring the highest can be attributed to the need for corporates to increasingly align the workplace with the Value-Driven and Positive Impact career aspirations of the Gen Y and Z talents that were heightened by post-pandemic shifts in personal and career priorities.
A total 93% of survey respondents expect a rental discount, with 44% the largest group expecting a discount in the range of 11-20% if a building does not align with their ESG goals. This corresponds with the current bundled premium of around 30% in rental for the latest green certification and build quality. In conclusion, we expect the flight to quality and sustainability trend to continue as more corporates pursue their net zero carbon targets. However, with older buildings being enhanced or redeveloped, with the latest green certification, occupiers who do not need to occupy the newest buildings, can occupy green certified office buildings at relatively reasonable prices.
3. Tackling sustainability at a human level is priority...
Panel Discussion
Sustainability at the workplace has led to initiatives such as calibrating serving plate sizes to mitigate daily food waste. As daily waste compounds and for paper intensive workplaces, starting the sustainability journey with small steps such as setting paper lite targets instead of paperless targets has helped ease employees into a sustainable mindset. For sustainable ESG impact at the workplace, the sustainability mindset should not rest only with facilities management but with every employee through awareness at the workplace. For example, urban farming company Grobrix is experiencing an uptake in demand for their indoor urban farm walls, which help bring sustainability and workplace wellness to life for employees. This includes interactive farm-to-table sessions where people can make healthy meals and drinks with produce grown on site.
Partnering for sustainability is where occupiers have started adopting green leases with their building owners as a framework for setting and fulfilling respective and/or collective ESG road maps and milestones. With Singapore’s drive towards low energy building certifications where both owners' and occupiers' consumption count, we can expect the use of green leases and its commitments by both building owners and occupiers to be on the rise.
Designing sustainability in the workplace has started occupiers making greener choices when selecting furniture, fixtures, fittings and equipment (FFF&E). In addition, occupiers are increasingly designing open and less built-up fit out with reusable furniture and movable meet / call booths that reduces both construction and end of term reinstatement cost and waste. Green fit outs can contribute significantly to lowering the carbon spend of an occupier and is slated to become the new normal.