Sustainability is a buzzword long associated with the idea of being good corporate citizen. In fact, the idea of sustainability can be traced to the post-World War Two rise of donor nations and then the anti-whaling and environmental movements.
The concept has recently transformed from being a buzzword to an imperative. Increasing pressure from stakeholders and governments, from London and Washington to Beijing, are pushing corporations to display leadership in this area to demonstrate what they are doing to reduce their impact on society and the environment. Sophisticated consumers in wealthier markets can be quick to boycott or avoid products they know were produced by “unsustainable organizations”.
Sustainability is also an issue for businesses that own and occupy commercial real estate. The commercial real estate portfolios of these companies have the potential to create significant negative exposure for organizations that may be trying to minimize their environmental and social footprint.
There is a direct link between commercial property and the health and welfare of the workers in it. Commercial buildings play an important role within communities, the impact of which is often ignored by developers that are looking for cheap land with limited government restrictions.
Commercial buildings can account for as much as 50% of all energy consumed within an economy, with air-conditioning and office equipment representing the majority of energy use. Commercial buildings also account for significant CO2 emissions and can use as much as a third of all water consumed within an economy.
Going green globally
There has been a steady increase in the development of sustainable real estate in Europe, the United States and Australia. Soon, the trend of environmental buildings in developed markets will have an impact in Greater China.
In a study by Jones Lang LaSalle and CoreNet this year, survey results showed a significant shift in attitudes to the issues surrounding sustainability. As many as 64% of respondents said they were prepared to pay some sort of “green building” premium.
The survey’s results are a remarkable development, considering the findings of another survey carried out by Jones Lang LaSalle two years ago. Property occupiers showed a strong reluctance to pay a premium for green real estate; indeed, many expected a discount for doing so.
The pricing issues around sustainable real estate in China, however, remain in the distance for the time being.
A China trend?
It is no secret that the environmental impacts of China’s economic growth have long taken a backseat to economic gain. According to the World Bank, 16 of the 20 most polluted cities in the world are in China. An estimated 400,000 people in China die prematurely every year due to air pollution alone. The country faces chronic energy shortages and an average annual water shortage of 20 billion cubic meters.
China’s built-up environment is to blame for many of its current environmental problems. The State Environmental Protection Agency (SEPA) stated recently that more than 80% of completed built space in China fails to meet government efficiency standards.
SEPA also said that up to 95% of buildings on the Chinese mainland are considered “high-energy consuming”, with average consumption levels two to three times higher than the norm in developed countries.
Sustainable real estate in China is becoming not merely nice to have, but a necessity.
Given the amount of energy and water that commercial buildings consume, and the significant greenhouse gas production associated with them, huge gains can be made if sustainable practices are adopted in the Chinese office property markets.
What is often most surprising is that gains can be achieved not by committing large amounts of capital, but by implementing simple solutions. Energy saving practices, better insulation and education programs can often reduce energy and water usage by up to 30%. These measures have environmental, social and financial benefits.
Many in China still perceive sustainable real estate as a Western agenda. However, with money to be made and sophisticated consumer markets to satisfy, this is unlikely to remain the case for long.