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What can be done to make Singapore buildings more green?

The Building & Construction Authority (BCA) launched the BCA Green Mark Scheme in 2005 to encourage building owners to adopt environmentally sustainable practices. Today, more than 3,000 buildings – covering 89 million square metres in gross floor area - have undergone Green Mark certification. However, two-thirds of the current stock remain uncertified. What’s holding building owners back and what can be done to make buildings here more environmentally friendly?

What can be done to make Singapore buildings more green?

The Novotel Singapore Clarke Quay is certified Green Mark GoldPlus, meaning it is environmentally friendly. The author says Green Mark certification can go beyond just the physical attributes of the building to include other indicators such as the adoption of green financing or green leases.

The Building & Construction Authority (BCA) launched the BCA Green Mark Scheme in 2005 to encourage building owners to adopt environmentally sustainable practices. The BCA has set a target for 80 per cent of all buildings to be certified by 2030.

Today, more than 3,000 buildings – covering 89 million square metres in gross floor area - have undergone Green Mark certification. However, two-thirds of the current stock remain uncertified.

What’s holding building owners back and what can be done to make buildings here more environmentally friendly?

Two related issues come to mind - that of cost and what returns a green building offer to its owner.

The costs of making a property green have come down substantially in recent years, particularly for new-built properties.

At a recent conference, the National University of Singapore’s Institute of Real Estate Studies demonstrated that the extra construction costs incurred in building a new energy-efficient building with Green Mark certification can be as low as 0.3 per cent, going up to 8 per cent for the top-tier platinum-level certification.

As a percentage of current market value, the additional cost of a green design for retrofitting an existing building is even smaller; at 0.5 per cent for retail space and one per cent for office buildings.

Interestingly, the study by NUS shows that industrial and hospitality assets continue to lag commercial (i.e. office and retail) buildings in their pursuit for Green Mark certification.

Many industrial assets have traditionally been fitted out for manufacturing firms, which limits the type of users that can occupy the space. In the case of these older warehouses and factories, the cost of retrofitting may outweigh the incremental benefits.

In the case of hospitality players like hotels, it can be challenging for them to undertake a major asset enhancement exercise without causing some disruption to hotel operations.

Ultimately, building owners decide on whether to green their assets based on a cost-benefit analysis.

The good news is that global data is beginning to show that buildings with a “green rating” are gaining an edge over those which are not.

The rents they command are about three per cent higher per square foot than other identical buildings in the same location.

This is likely due to demand from tenants who place a premium on being located in a green building as a signal of its commitment to sustainability and corporate social responsibility.

Some may even see it as a branding tool to attract and retain talents, particularly the environmentally conscious ones from the millennial generation.

Notably, almost all the commercial properties owned by S‐Reits are Green Mark certified. It would seem that competition has driven listed commercial landlords to enhance their assets’ sustainability and marketability in a bid to maintain shareholder accountability.

With the perception of green buildings shifting, what we need now is greater efforts by the authorities to promote education and awareness on the benefits of going green for building owners, as well as incentives and support to encourage industry players to embark on this journey together.

Perhaps the government could tighten rules to specify that all asset enhancement initiatives by building owners will only be approved if the landlords upgrade the building to a higher grade Green Mark certification. Currently, building owners get cash incentives to improve their buildings’ energy efficiency, but there is no rule requiring them to do so.

Furthermore, the shorter leases of industrial properties are a major hurdle in nudging landlords to shell out capital expenditure to green the buildings.

Perhaps, the government can incentivise the landlords by allowing lease extension if the redevelopment of such buildings fulfils at least a Green Mark Gold certification.

Green Mark certification can also go beyond just the physical attributes of the building. For instance, other indicators such as the adoption of green financing or green leases can also be considered for future criteria for such certification.

Green financing such as bonds and loans are among a wider range of sustainability-oriented benchmarks, funds and products that the Monetary Authority of Singapore is seeking to promote locally. Such financing is by definition used to fund environmentally-friendly projects.

Green financing is gaining traction in Singapore with City Development issuing the first green bond in April 2017. In August this year, Ho Bee Group secured Singapore’s first green loan for its London property and last month, CapitaLand secured a S$300 million multi-currency sustainability-linked loan from DBS.

The five-year term loan and revolving credit facility is said to be the first sustainability-linked loan in Asia’s real estate sector.

A green lease is a lease that incorporates ecologically sustainable development principles to ensure that the use and operation of a building minimises the impact on the environment.

In commercial properties, tenants account for around half of electricity consumption, BCA’s inaugural Building Energy Benchmaking Report reveals.

This points to the importance of building owners working closely with their tenants to achieve the common goal of a green and sustainable built environment. A green lease works to ensure both landlords and tenants are required to adopt eco-friendly practices.

For instance, landlords could share energy consumption levels with tenants so that they are aware of the amount of energy they consume.

Many firms now turn off lights during the lunch hour. The simple habit of turning off computer monitors goes a long way in saving energy. Whatever cost savings accrued by landlords should be passed on to tenants.

Landlords can do their part in helping tenants to reduce energy consumption through installing energy-saving lights, lighting sensors and energy-efficient appliances as well as maximising natural lighting.

The collective effort of all stakeholders is needed in the drive for sustainable development.

 

ABOUT THE AUTHOR:

Christine Li is senior director and head of research at property consultancy Cushman & Wakefield Singapore.

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