Orient - The Official Magazine of the British Chamber of Commerce Singapore - Issue 71 April 2019
Addressing the valuation problem
Outside of the US and the UK, there are limited amounts of data available regarding the financial performance of green buildings. In the UK, it was shown by one study that that environmentally certified buildings tend to command premiums, with effects on market rents and selling prices1.
At the front end, however, large numbers have been cited for the construction of green buildings. This can make development forecasts a poor investment decision for today’s future forecast. The costs of operating sustainable features during the lifecycle cost of the building also needs to be considered.
One way to establish a positive investment decision may focus on the net present value of future savings due to energy efficient features. However, unless hedging is in place, the exposure to fluctuating energy prices can have a considerable impact. Green buildings will likely have to go beyond conserving energy to make the additional capital expenditure on sustainable features worthwhile.
Ultimately, it has not been conclusively shown that yields are positively affected by sustainable features. New approaches to green buildings – such as the positive impacts on their occupiers – therefore need to be considered to ensure that the sector enjoys a prosperous future. In the long run, green buildings must be economically and environmentally sustainable, eventually moving away from government subsidies or other indirect support.
Muddied interventions in a changing world
Investors in green buildings often take advantage of various forms of market interventions that have been introduced by local governments to encourage further green building development. These include pilot projects, tax incentives (for example, offering tax breaks for installing energy efficient equipment), new regulations and licensing procedures, and information campaigns.
The tools have generally been around for a long time. But in light of ambitious Paris Agreement targets, the regulations applying to green building are in a state of flux, often tailored to local conditions with variable and inconsistent approaches across the world’s most significant real estate markets.
Whilst the regulatory environment for green buildings is generally favourable in the world’s main financial centres, too many changes to existing policies and regulations may also have a detrimental effect. To counter the potential regulatory uncertainty, there is an opportunity for the industry to get ahead of the curve in terms of self-regulation, without the need for draconian laws.
The level of tweaking to existing policies, or the introduction of new ones, suggests that some