Issues of sustainability are increasingly influencing property markets and the way in which buildings are developed, marketed, transacted and operated worldwide. After unlimited energy consumption, we are moving towards new standards as investors and occupiers seek maximum performance while using significantly less carbon. The focus has shifted from "location, location, location" to the (admittedly less catchy) "location, specification, efficiency and adaptability".
Measurement is at the heart of this new approach.
This trend is being driven by compliance (regulatory measures to meet climate change objectives, namely Kyoto targets); preference (corporates seeking to satisfy corporate social responsibility initiatives); and mitigation (against the impact of rising energy prices).
While this is a global issue it is of particular importance in China, where rapidly expanding markets will result in buildings accounting for around 35% of national energy consumption by 2020 (up from 10% in the 1970s). Each year, around 20 billion square feet of new real estate comes onto the market — twice the size of New York City. Such startling figures require concrete steps, and we have seen a burst of interest in green buildings in recent months, spurred on by the anticipated inclusion of a green building focus in the government's 12th five-year plan.
These new conditions require new forms of measurement — going beyond monetary pricing — to quantify the impact of sustainability on global real estate markets. Green rating systems provide a transparent method of measuring and assessing the performance of a building. They provide vital data to inform key decisions on value, stock selection and design, and provide property professionals with a way to measure market supply and demand for "green" buildings.
Since the introduction of the British Research Establishment (BRE) Environmental Assessment Method Methodology (BREEAM) in the UK in 1990, there has been a global proliferation of green rating systems. Hong Kong's BEAM was established in 1996, and 10 years later the Chinese government launched its own national green building rating known as "Three Star".
At the same time, China is the fastest growing market for LEED, the US Green Building Council's Leadership in Energy and Environmental Design (LEED) rating system.
At DTZ, we believe that "green" will become a vital ingredient of "prime" and that green building ratings will become a de facto requirement of global real estate markets, delineating non-compliant properties that do not, or will not, meet prescribed standards.
The market is flooded with options and international property investors, developers and occupiers face the challenge of deciding which ratings system to use. Choosing the most relevant rating will be the difference between adding value through the best asset management and losing money through increased obsolescence. Question: Should a global investor developing assets in China target Three Star or LEED or both? Answer: Read on!
In Australia, with stringent regulation, real estate markets have adapted to new construction techniques, demand from tenants and pressure from stakeholders. Most tenants, particularly government departments, require minimum standards for all buildings that they occupy and landlords who choose not to upgrade or "greenify" their assets can find that letting takes longer and that rents are lower, demonstrating that sustainability provides the best combination of asset protection and enhancement.
We have analysed green ratings systems globally to understand how their criteria, methodologies and coverage influence their attractiveness and utility to users. By coverage, I refer to geographical reach, type of asset (office, retail, industrial, residential etc), and life cycle stage (ie some ratings focus on the build and design stage, while others seek to address existing buildings and operational performance). Some criteria are quantitative and easily measurable, while others are qualitative.
Energy use, indoor environmental quality, and water use are common to the majority of systems. Other criteria vary significantly.
This implies a lack of clarity over which are the most valuable and makes cross-comparison difficult. There are clear parallels, however, between some of the more mature systems as many are based on BREEAM or LEED.
And should a global investor developing assets in China target Three Star or LEED, or both? — users should determine their needs before choosing a green rating that best matches stakeholder requirements, individual environmental and sustainability goals and regional characteristics, such as governmental policy and climatic variation. — SCMP
Kate Medlicott is an associate director at DTZ, Hong Kong
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