Investing in sustainability
There has been a growing global awareness about the detrimental effects of our excessive development and consumption on the environment. This has sparked a collective shift towards greener designs, processes, and materials.
Locally, business districts in Metro Manila reveal a similar trend as seen in the increasing number of developments proudly displaying green building certifications. Is this indicative of a broader shift towards green building becoming the standard? Are these environmentally conscious structures proving to be attractive investments?
Embracing green practices
During the early stages of the green building movement in the Philippines, sustainable practices were considered a welcome but optional addition to a property. They were perceived as a superficial feature with underappreciated advantages.
Today, however, the growing global awareness of their benefits has motivated more industry players and property stakeholders to actively embrace and integrate these practices in their respective developments.
These green buildings are typically designed with features and specifications that aim to minimize environmental impact while promoting the health and wellness of occupants and communities. This is evident through the water and energy efficient features, waste management programs, integration of renewable energy, utilization of smart technology, sustainable building materials, biophilic designs, and the implementation of climate resilient structures.
But how do all these translate to the bottom line in terms of property value? At its core, a property’s value is based on the income it generates—specifically, the net operating income derived from revenues minus expenses.
Revenues
In terms of revenues, rental rates for green buildings in the Ortigas, Pasig and Mandaluyong areas can command a premium of up to approximately 40 percent compared to grade A buildings within the same district. In the Makati central business district, the premium can reach up to 20 percent.
Interestingly, for Bonifacio Global City, there appears to be a discount on green building rents, with a potential decrease of up to 15 percent. However, when it comes to occupancy, we see that it’s still a pricing game, as tenants gravitate towards more affordable rents, although not exclusively in favor of green buildings.
Expenses
Turning to expenses, green buildings hold a distinct advantage. The integrated technologies are tailored for efficiency, yielding substantial savings on utilities consumption—reaching about 40 percent for energy and over 60 percent for water. For office occupiers, a thoughtfully designed development that promotes a healthy atmosphere not only contributes to cost savings through reduced utility expenses but also contributes to lower employee turnover, further enhancing the overall financial outlook.
While tenants may initially prioritize rental rates, a shift often occurs as they recognize the long term cost savings associated with green buildings. As tenants reassess the parameters of their occupancy cost analysis, the realized efficiency and sustainability benefits can lead to a reevaluation of priorities.
Ultimately, the effective savings in consumption offered by green buildings will translate to a higher overall value.
Longevity and risk
Considerations of longevity and risk play a crucial role in evaluating the value of a development.
The durability of materials and the conscientious design not only extend the lifespan of the property but also enhances the sustainability of the consumables. For investors and lenders alike, this translates to a longer period for the asset to generate sustained or increasing lease rate, minimizing the need for significant capital expenditures. With this, green development can be viewed as having lower risk profiles.
Despite the apparent parity in rental and occupancy rates between green and non-green buildings, the evident cost savings, coupled with a lower risk profile and enhanced asset efficiency, distinctly showcase the premium of green buildings. This makes them a more judicious and attractive investment for developers and other property stakeholders.
The author is the associate director and head of Research at Leechiu Property Consultants Inc.
