Real estate as a sector has been viewed as a favourable investment option for the longest time owing to the availability of a physical asset, the historic returns, and the feeling of stability that is associated with owning a property. Gradually, the responsibility of this sector towards the environment has been increasing as real estate in India is at the cusp of unseen levels of growth and hence, conscious development becomes highly imperative. In addition to that, sustainable and climate friendly measures impact economic outcomes and goes beyond just building a green future.
Sustainable practices in commercial real estate (CRE) start with massive awareness and adoption at every stage of building a property. Incorporating environmental friendly techniques, raw materials, and technologies while planning a property helps in reducing the carbon footprint, thus, enabling a safe future. Some of the challenges that the real estate sector faces in building a sustainable future are: resource scarcity, environment degradation, and high set-up costs. However, resource scarcity and environmental degradation can be overcome by sustainable land management. The initial set-up expenses could get high in that case, but the benefits it provides are significant for generations to come.
With the rise in demand for more sustainable properties, the interest of investors in green buildings is also on the rise. Non-financial measures have increasingly been catching the stakeholder’s interest as it creates a long-term value for a company. Green real estate assets have increased by 37% in the last 5 years, according to a research report by CBRE. Additionally, more millennials and GenZs are wanting to associate themselves with companies that are socially and environmentally responsible.
In the global real estate industry, determination of capital allocations is now driven by non-financial measures as much as past financial performance has been a decision making factor. To achieve sustainability targets, companies are taking steps that help in reducing energy consumption and have positive environmental effects. The conversation around green buildings has evolved as a lot of multinational companies lease buildings for a long period of time and the reasons to take action to cut carbon emissions are now overwhelmingly greater than the reasons to ignore. And it is not just the environmental aspect that is driving these companies and investors, studies on the value of the ‘green premium’ in green real estate have shown that green certifications yield a rent premium of 6.0% and a sales premium of 7.6%.
Technology plays a very important role in building and adopting sustainable strategies. Companies that have eco-friendly business models in place are highly likely to succeed in achieving their sustainability targets in the near future. Every company must look at a holistic ESG transformation, where risks are actively monitored which includes contribution to climate change, energy utilized, etc.
Grade-A buildings are receiving investor’s interest as it illustrates the most progress on sustainability performance. Analysing the sustainability factors, risks and their impact on the value of buildings is highly crucial to developing green real estate projects. Naturally, these properties demand a premium as opposed to non-sustainable properties. For a property to qualify as a sustainable one, LEED certification is unavoidable as it meets the highest standards of eco-friendliness. Property owners should start focussing more on constructing properties with large gardens, storm water drains to sustain underground water stability, solar power systems, etc. These sustainability-minded efforts will help in collectively building a green future.
According to a report by IBEF, the real estate sector accounts for about 22% of the emissions in the country, by virtue of being a driver of the Indian economy. With the growing demand, the real estate sector should start shifting towards executing strategies that will contribute to limiting the emission of hazardous gases, making it an important part of their offerings. Going green gets financially beneficial for both the developer and the consumer in the long run. Rise in conscious buyers are an added advantage as it further induces the developers to strongly work towards their sustainability targets.
From the investment lens, platforms that offer new-age CRE investment vehicles such as fractional ownership have also witnessed a rise in demand among investors for LEED-certified Grade-A Assets. Developing and maintaining sustainable practices also has a positive impact on the brands’ reputation and credibility. Since the world is gradually inclining towards building a more sustainable lifestyle, it is time to necessitate conscious practices towards building a green future as it is an obvious available solution.
