In 2005 Singapore’s Building & Construction Authority (BCA) launched the BCA Green Mark Scheme. An initiative to move the local construction industry towards environmentally-friendly buildings, the BCA has set a target for 80 per cent of all commercial buildings to be certified by 2030.
That target set in a motion a series of retrofits by investors to meet energy sustainability targets in Singapore. Today, more than 3,000 buildings have undergone Green Mark certification. This represents more than 89 million sq m in footprint. However, 2/3 of the current stock remain un-certified.
Retrofitting Costs No Longer Prohibitive to Green Mark Certification
The reality is that the cost of retrofitting a building to meet sustainability standards has come down substantially. At a recent conference, the National University of Singapore’s Institute of Real Estate Studies demonstrated that the extra construction costs incurred in building an energy efficient building with Green Mark certification can be as low as 0.3 per cent, going up to 8 per cent for platinum-level certification. As a percentage of current market value, it is even smaller; at 0.5% for retail and one percent for office.
Gap Closing Between Older and Newer Office Buildings
Almost all the commercial (i.e. office and retail) properties owned by S‐REITs are green mark certified. Intense competition could be driving commercial landlords to raise the marketability of their assets, in a bid to maintain shareholder accountability. Retrofitting older commercial buildings helps elevate them to be on par with the newer, swanky office buildings and shopping malls. It puts them on the same level playing field to attract occupier clients, many of whom have a corporate sustainability agenda.
Older Hospitality and Industrial Assets Still Lagging
The same study shows that industrial and hospitality assets continue to lag commercial 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.
Investors have likely worked out that it is more efficient to develop an energy efficient development from scratch than it is to retrofit an existing structure. It is also more challenging for hotels to undertake a major asset enhancement exercise as it is poses a big disruption to hotel operations, inconveniencing guests.
Still, 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 psf than otherwise identical buildings in the same location.
Employee Well Being
Occupiers have certainly begun to put a premium on being located in a Green Mark certified building. It is a public commitment to their employees that they value employee wellbeing, it builds brand affinity as a socially responsible corporate citizen, and is a big boost to attracting and retaining talent.
For more on how Singapore is applying regulation to improve the environmental impact of the corporate sector, check out our post on the Singapore Carbon Tax.