Certified green office stock grew by 177% in the past five years to 212 mn sq. ft. in Q3 2021

CBRE South Asia Pvt. Ltd, India’s leading real estate consulting firm, today announced the findings of its latest report ‘Indian Real Estate’s ESG Landscape and its Progress to a Sustainable Future”. The report analyzes how Environmental, Social and Governance (ESG) would be the driving force for Indian CRE stakeholders going forward.

The report was unveiled at a virtual event attended by imminent dignitaries including Irfan A. Kazi, Chief Investment Officer – SWAMIH Investment Fund (25000 Cr Government Fund) and Mike Holland, Chief Executive Officer, Embassy Office Parks REIT.

The report outlines CBRE’s ESG strategy and provides a framework that explores environmental considerations that occupiers should focus on throughout their property lease or ownership cycle.

As businesses increasingly focus on developing forward-looking strategies that take climatic, societal, and ethical issues into consideration, ESG must evolve from a peripheral balance sheet issue to a key component of investment decision-making.  For the real estate industry, the spotlight is increasingly on developer and occupier strategies to deliver net-zero targets and contribute to the larger cause of climate change.

For India, given our size and population, the climate risks have grown manifold. The country ranked among the top 20 nations globally on the GermanWatch’s Global Climate Risk Index Rankings 2000-2019; in 2019, it was among the 10 most vulnerable nations ranked on this index, thereby demonstrating growing climate risks.

“ESG is integral to CBRE’s business strategy from the way we operate as a business to serving our clients and in helping them meet their own targets,” said, Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, “We recognise the unprecedented social and environmental challenges facing our industry and the built environment and are committed to build a better and sustainable urban India through our people, clients and industry leading services and partnerships.”

“Convergence of global challenges has heightened focus on the ESG issues and has put a spotlight on corporate real estate (CRE) leaders’ purpose and mission,” said, Gurjot Bhatia, Managing Director – Project Management, CBRE India, Middle East and North Africa, “With this report, CBRE offers insights on ESG considerations and actions that will help to move our industry toward a more sustainable future.”

Over the past decade, green real estate assets – across top six cities in India (NCR, Mumbai, Pune, Hyderabad, Bangalore and Chennai), grew tremendously, with their share in the total office stock increasing from 24% in 2011 to 31% in 2021. Certified stock also increased substantially, growing at a CAGR of 10.7%, compared to 7.7% for the overall stock, since 2011.

The report highlights that NCR and Bangalore are ahead of the curve and together account for ~ 54% of the total certified office stock of India. While NCR and Hyderabad lead the fray in terms of the share of certified buildings in their respective total stock, with a 44% share each; followed by Chennai at 37%. Meanwhile, Mumbai (16%) and Pune (15%) have a significant potential to improve their share on this parameter.

Other report observations

• Cities such as Bangalore, Mumbai and NCR have a higher proportion of certified stock in their non-SEZ projects whereas Chennai and Pune showed higher share of certified stock in their SEZ projects.
• Among certified green SEZ projects, Pune has reported the highest premium of 11.1% compared with non-certified projects, followed by Chennai (9%).
• One city that stands out on this parameter is NCR, where the entire SEZ stock is certified green, thus making it a benchmark for other cities
• Mumbai leads the market in terms of rental premium in green non-SEZ projects, commanding a 33% rental premium over the non-certified stock; followed by Chennai (31%). Hyderabad and Pune were the laggards, with 11% and 5% premium, respectively.
• NCR led in LEED certification followed by Bangalore with their major stock being Platinum and Gold certified.
• Under IGBC certification, Hyderabad is leading the way with a good mix of Gold and Platinum certifications followed by Bangalore with all certifications being of the Platinum category.
• India is also witnessing a trend wherein city peripheries across almost all cities analysed have the highest share in green buildings, followed by secondary locations; core or central locations have the lowest number of green buildings as it is usually a hub of older projects.
• Institutional asset owners are ahead of the curve as even though they own only 22% of the total office stock in India, almost 45% of it is green certified.
• On the other hand, non-institutional asset owners hold a 78% share (539 million sq. ft.) in the total stock, but only 27% of it is green certified.
• As of Q3 2021, over 35% of the total REIT assets were green certified, which is anticipated to increase significantly owing to the evolving policy and regulatory ecosystem.

For those of us in the real estate business, the need to imbibe ESG principles is not just a moral imperative, but also a fiduciary responsibility. With increased scrutiny on ESG, CRE stakeholders need to understand, improve, and leverage their performance on this front to drive value and stay competitive. The essential question is no longer what to do, but rather how to do it.