Cost is a hurdle for developers going green

Source : Business Times - 29 Nov 2008

Studies show property players are less likely to pay a premium for green office space now

REAL estate players in Singapore and the region want to go green but the cost of doing so is proving to be a barrier, studies show.

Corporate property executives are less likely to pay a premium for green office space now than they were a year ago, even though more of them see energy and sustainability as a business priority, according to a survey by CoreNet Global and Jones Lang LaSalle (JLL).

Another survey, by Singapore-based construction information services firm BCI Asia, shows similarly that perceived high upfront costs are proving to be a big barrier to green building in Singapore and other South-east Asian countries.

BCI polled 1,200 building professionals across the Asia-Pacific on their attitude to green building. The main hindrance across the region is the expected upfront cost premium. Some 58 per cent of respondents from South-east Asia think a green building will cost 10 per cent or more than a conventional one. And some 27 per cent of respondents believe the premium could be 20 per cent or more.

‘Despite the government’s efforts, the biggest barrier to green building in Singapore is perceived high upfront costs, which is a major issue across the survey region,’ BCI Asia said in its Q3 publication.

There is resistance to forking out more, despite increased awareness of the need for sustainable development. In the survey by CoreNet and JLL, 69 per cent of more than 400 corporate property executives surveyed said that sustainability is a critical issue for their property departments. In contrast, just 47 per cent felt that way in 2007. But despite the greater importance placed on sustainability, the number of companies willing to pay more for it has dropped since 2007.

According to Chris Wallbank, JLL’s Asia-Pacific head of energy and sustainability services, Asia is repeating many of the trends that accelerated the growth of green building industries in Europe and North America. ‘If you look across Asia at many of the higher-quality commercial developments, you’ll find that most are being designed and built with sustainability as a major consideration.’ he said. ‘This shift towards sustainability suggests that those in the industry are recognising its value going into the future.’

In some mature markets such as Hong Kong and Singapore, the opportunity to implement sustainability is limited by the availability of land that can be developed, Mr Wallbank pointed out.

BCI’s survey also showed that Singapore lags regional neighbours Australia and Hong Kong when it comes to a serious commitment to green building. Some 10 per cent of respondents from Singapore reported ’significant’ green building commitment, lower than the 23 per cent in Hong Kong and 29 per cent in Australia.

In Singapore the two main drivers of green buildings are rising energy costs and regulation by the government, which has been pushing its Green Mark system. The government has also created a $50 million R&D fund to boost development of green building technology.

The message seems to have got through. ‘Sustainable development is not a choice. We just do not have the luxury as a small country to ignore it. The faster we get there, the better it is for us all,’ Simon Cheong, president of the Real Estate Developers’ Association of Singapore (Redas), said at the industry group’s annual dinner on Wednesday. Redas members received 42 Green Mark awards this year, up from 17 in 2007.

Singapore is expected to have a blueprint for sustainable development for the next 10-15 years by February next year. An inter-ministerial committee on sustainable development, set up in February this year to come up with a national strategy, will release its recommendations then.

National Development Minister Mah Bow Tan has acknowledged that those bearing the cost of green buildings (such as developers) are not the same as those who will benefit (such as tenants). This disparity has to be addressed, he said at a public forum on Nov 6.

Analysts told BT that anecdotal evidence shows the upfront premium for a green building compared with a conventional one is unlikely to be as high as many players here think. For example, for City Developments’ $200 million City Square Mall, going green added only 2-5 per cent in construction costs.