Occupier Demand for Green Buildings Grew in 2020, Says Study

In any given year, the construction, operation and decommissioning of buildings will be responsible for roughly 40% of total global greenhouse gas emissions. A new study has probed the attitudes of the sector’s people to open a window on our collective prospects of avoiding climate catastrophe. It claims that around three-fifths of its surveys’ respondents globally report that occupier demand for green/sustainable buildings has grown over the past twelve months.

The World Built Environment Forum Sustainability Report 2021 has been produced by the RICS Global Commercial Property Monitor (GCPM) and the RICS Global Construction Monitor (GCM), which are the leading indicators of market conditions in the built environment. In Q2 2021, the study sought the opinions of over 4,000 professionals on a range of emerging sustainability-related issues. The findings are spread across four broad geographies: the Americas, Asia Pacific, Europe, and the Middle East and Africa.

Overall, results suggest that the industry is making progress, though not at the rate required to fully meet its climate obligations. At the aggregated global level, and across individual regional groupings, respondents consistently reported ‘modest’, rather than ‘significant’, demand growth for green real estate assets, leases and construction materials. Nearly half of respondents saw evidence of an emerging rent and price premium for green buildings, though a relatively small share report value uplifts exceeding 10%.

Survey feedback from across the commercial property sector suggests that interest in green and sustainable buildings has risen to some extent over the past year. The RICS Sustainable Building Index, designed to track global occupier and investor appetite for green/ sustainable buildings over the last 12 months, has posted a net balance reading of +55 for 2021. This clearly points to a rise in demand for climate-adapted real estate. Results vary from region to region, with demand growth in Europe leading Asia Pacific, the Americas, and the Middle East and Africa, shows the study.

Around three-fifths of respondents globally report that occupier demand for green/sustainable buildings has grown over the past twelve months. Most (around 47%) detect only a modest rise, while just over 10% note a significant pick-up. The growth in occupier demand for green/sustainable buildings is most pronounced in Europe. Just over half of respondents note modest demand growth across the region, with a further 15% reporting a more significant shift.

Responses point to broadly similar trends in investment markets. Around 45% of those surveyed globally report a modest pick-up in investor demand for green/ sustainable buildings in the past year. A further 16% detect a more significant increase in interest.

Again, Europe appears to be leading the way. Across the continent, around three-quarters of contributors note rising investor demand, with almost 45% seeing a modest increase. Almost one-third of Europe-based respondents report more significant demand growth over the past year. In contrast, in the Middle East and Africa, Asia Pacific, and the Americas, the proportion of respondents reporting a significant rise in investor demand for green/ sustainable buildings is only around 10%. Globally, a noteable share (around one-third) of respondents have seen no change in occupier or investor demand for green/sustainable buildings.

In spite of the economic distress caused by COVID-19, just 5% of respondents note a fall in occupier demand for green/sustainable buildings. Feedback on the investor side of the market paints a similar picture, with only 6% reporting dampened appetites.

It appears that the modest pick-up in demand is having some impact on rents and prices. Globally, around half of respondents believe that green/sustainable buildings achieve a rent and a price premium over comparable non-green/sustainable buildings. More than one-third believe that the rent and price premium stands at up to 10%; around 15% judge it to be higher still.
Furthermore, over 30% of respondents suggest that, even if there is no rent or price premium, buildings not classed as green or sustainable are subject to a brown discount. Conversely, less than 20% of respondents believe there to be neither a rent or price premium, nor brown discount.

Additionally, globally, almost two-thirds of respondents name minimising waste as one of the industry’s priority concerns on sustainability. In Europe, waste is a principal concern, being cited by over 50% of respondents. Embodied and operational carbon counts as a similarly pressing concern across the continent; no more so than in the UK, Ireland and Germany, where they are referenced by nearly two- thirds of respondents.

The picture is entirely different in India, where between 20-30% consider a decline in operational and embodied carbon to be a leading industry priority. A much larger proportion hold water consumption and materials resilience to be important, while waste, cited by around three-quarters of respondents, tops the list of concerns, shows the study.