Article

How governments are supporting the pursuit of greener buildings

Incentives and legislation push for sustainability in both new and older buildings

December 21, 2022

Countries with net zero targets are rallying to boost the pipeline of sustainable buildings by offering incentives and implementing green standards.

Take Singapore, where the Building and Construction Authority launched an incentive scheme this year to fund retrofitting projects based on the expected emissions reduction. Now, the city-state boasts one of the highest percentages of green-certified buildings in Asia Pacific.

Some governments have also enacted new legislation to urge building owners to pursue retrofitting. In New York, buildings larger than 25,000 square feet will soon face financial penalties if they fail to hit emission targets under a new law taking effect from 2024.

“Such government intervention — in the form of a carrot-and-stick approach using a combination of incentives and legislation — is critical to accelerating the transition to net zero carbon,” says Andrew Macpherson, Head of Asset Development, Asia Pacific, JLL.

But the main driving force behind greener buildings continues to be occupiers with net zero pledges.

Up to one-third of corporate real estate leaders in Asia Pacific are planning to exit carbon-inefficient buildings by 2025 as sustainability becomes an increasingly decisive factor in leasing criteria, according to JLL’s research on green premiums.

“Real estate forms a key part of the commitment to decarbonization, so firms are choosing to only occupy buildings that support or accelerate their plans,” says Macpherson.

The tenant pool for non-green-certified buildings will continue to shrink and the magnitude of brown discounts for these assets will undoubtedly increase, he says.

Making the case for retrofitting

New buildings typically meet the required minimum sustainability standards, such as energy usage intensity, set by governments on new developments.

In China, for instance, the government issued a new regulation in April mandating reports on energy consumption, renewable energy usage, and carbon footprint to be included as part of the feasibility study, construction plan, and preliminary design documents for new construction projects.

While these efforts indicate progress, the supply of new builds only accounts for less than 3% of total building stock per year, JLL data shows.

With the demand for greener buildings far outpacing supply, retrofitting has emerged as the preferred solution for occupiers and governments to achieve net zero commitments.

“Retrofitting projects usually take around 18 months, or one-third of the time for a new development, with time saved on processes including design, procurement, and construction,” says Macpherson.

The business case for retrofitting existing buildings is particularly strong in the Asia Pacific region.

“With the majority of buildings still expected to be operating in 30 years, the region’s office sector holds 333 million square meters of retrofitting potential across seven key cities,” says Elke Kornalijnslijper, Head of Sustainability Consulting, Asia Pacific, JLL.

The significant upside potential on rental rates — up to 28% higher in some Asia Pacific markets — and capital values for green-certified office stock also make retrofitting an attractive prospect for owners of legacy assets, especially those in good locations, according to Macpherson.

Rethinking rebuilds

Yet for all the benefits of retrofitting, challenges remain.

“Existing buildings can be complicated to work on due to unforeseen risks,” says Macpherson. “In some instances, the high capital expenditure (CapEx) may render retrofitting non-viable in terms of the potential return on investment, so detailed analysis and cost-benefit studies are required before committing CapEx.”

Retrofitting has, however, had a positive impact on developers whose mindsets toward new builds have shifted over time.

“The incidences where older buildings are demolished and rebuilt have reduced significantly because developers and buildings owners are thinking twice,” says Macpherson. “This is due to the perception and negative sentiment that they anticipate for rebuilding instead of upgrading, which is less carbon-intensive.”

To push for greater progress, it is imperative for governments to take on a more active role in encouraging upgrades, says Macpherson.

“Implementing appropriate legislation and dangling attractive incentives for owners and occupiers will further accelerate the pace of retrofitting, and ultimately plug the supply shortfall in green buildings across Asia Pacific.”