Green the new gold

Why be­ing en­vi­ron­men­tally friendly will put more – not less – money in in­vestors’ pock­ets

Finweek English Edition - - Property - JOAN MULLER

SUG­GES­TIONS that go­ing the green build­ing route will erode the profit mar­gins of com­mer­cial prop­erty de­vel­op­ers and own­ers have been dis­missed by in­ter­na­tional real es­tate play­ers. Speak­ers who at­tended the in­au­gu­ral an­nual con­ven­tion of the Green Build­ing Coun­cil of South Africa (GBCSA) in Cape Town last week made a strong busi­ness case for SA’s prop­erty sec­tor to adopt more en­vi­ron­men­tally friendly de­sign and construction prin­ci­ples.

The elec­tric­ity cri­sis and steep in­crease in the cost of power have no doubt served as a wakeup call for SA’s prop­erty in­dus­try to fol­low the global move to­wards en­ergy ef­fi­cient de­vel­op­ment prin­ci­ples. But the big­gest is­sue for many SA prop­erty own­ers is how to get around the ad­di­tional costs in­volved in go­ing the green build­ing route.

How­ever, prop­erty ex­perts in the United States and Aus­tralia main­tain the longer-term sav­ings and ben­e­fits of in­cor­po­rat­ing sus­tain­able de­sign prin­ci­ples into both new and ex­ist­ing build­ings far out­weigh the ini­tial cap­i­tal out­lay.

Rick Fedrizzi, pres­i­dent and found­ing mem­ber of the US Green Build­ing Coun­cil, says: “The green build­ing move­ment isn’t only gain­ing mo­men­tum glob­ally be­cause we’re tree-hug­gers. It’s also cre­at­ing bet­ter per­form­ing prop­erty as­sets and im­proved in­vest­ment re­turns.’’

Fedrizzi says in ma­jor busi­ness nodes, such as New York City, green build­ings com­mand an av­er­age 10% rental pre­mium to their con­ven­tional coun­ter­parts, as ten­ants be­come in­creas­ingly aware of the ben­e­fits that green build­ings of­fer. US stud­ies show pro­duc­tiv­ity in­creases from 5% to 15% among staff housed in green build­ings. They also of­fer more nat­u­ral light, more fresh air and re­duce sick days as­so­ci­ated with the so-called “sick build­ing syn­drome”.

Fedrizzi says con­sumers also tend to spend more in green malls, driv­ing higher re­turns for both re­tail­ers and shop­ping cen­tre own­ers. In the US re­tail trad­ing den­si­ties (re­tail sales per square foot or me­tre) are up to 40% higher in green malls than in con­ven­tional ones. Says Fedrizzi: “It’s not rocket sci­ence. If some­one feels more en­er­gised due to bet­ter ven­ti­la­tion and re­duced ex­po­sure to green­house gases, they’ll nat­u­rally be more in­clined to try on clothes and spend more time shop­ping.”

Fedrizzi notes that in the US util­ity bills for elec­tric­ity and wa­ter us­age in green build­ings are typ­i­cally 30% to 40% lower than those of con­ven­tional build­ings. He says though offices and shop­ping cen­tres that ad­here to strict green prin­ci­ples cost on av­er­age 6,8% more to build than con­ven­tional build­ings, those ad­di­tional construction costs can gen­er­ally be re­couped within 10 months through sav­ings on wa­ter and elec­tric­ity con­sump­tion and re­duced equip­ment load on air­con­di­tion­ing and lighting.

Romilly Madew, CEO of the Green Build­ing Coun­cil of Aus­tralia (GBCA), echoes a sim­i­lar sen­ti­ment. She says al­though the first few green star rated build­ings ini­tially cost more to build when Aus­tralia launched its rat­ing stan­dard three years ago, the pay­back in terms of wa­ter and elec­tric­ity sav- ings, as well as rental pre­mi­ums, have since proved to be “huge”.

Madew says green star rated com­mer­cial build­ings in Aus­tralia gen­er­ally have a wait­ing list of prospec­tive ten­ants, which sup­ports a pre­mium on both rentals and prop­erty val­ues. Its green build­ing move­ment has gained such mo­men­tum over the past three years that the num­ber of GBCA cer­ti­fied green build­ings in Aus­tralia surged from three in 2005 to the cur­rent 100.

Says Madew: “Even the listed prop­erty sec­tor – which two years ago wasn’t re­ally in­volved in the green move­ment – has now adopted the mind­set that en­vi­ron­men­tally sus­tain­able de­vel­op­ment is the best way to ‘fu­ture proof’ your real es­tate as­sets.”

Re­search con­ducted by the SA-based branch of quan­tity sur­vey­ors Davis Lang­don shows that ad­her­ing to strict green prin­ci­ples (to qual­ify for a four to six green star rat­ing) would add be­tween 9% and 11% to SA de­vel­op­ers’ to­tal build­ing costs.

Davis Lang­don Africa CEO In­dresen Pil­lay says SA’s prop­erty sec­tor should stop ques­tion­ing whether green build­ings cost more but rather ask how they can go green within avail­able bud­gets. “Go­ing green doesn’t nec­es­sar­ily have to cost more. It all de­pends on the de­sign and build­ing ma­te­rial choices you make.”

Pil­lay says SA as­set man­agers will have to pay more at­ten­tion to how green build­ing is­sues will af­fect the fu­ture re­sale val­ues and re­turns of bricks and mor­tar in­vest­ments. “It won’t be long be­fore sus­tain­able de­sign so­lu­tions be­come the norm in SA’s com­mer­cial prop­erty in­dus­try.”

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