Banking on green buildings in Singapore

By Ho Chee Kit and Wong Xian Yang,
Cushman & Wakefield
/ EdgeProp Singapore |
Buildings with higher Green Mark ratings in general tend to command higher occupancy and rents (Photo: Samuel Isaac Chua/EdgeProp Singapore)
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SINGAPORE (EDGEPROP) - Does sustainability pay? We think it does help performance. We analysed the trends of office buildings within our CBD basket to determine if office buildings with Green Mark ratings enjoy better occupancy and rents. Given that the best office buildings tend to be highly accredited and factors such as location will also affect rents, measuring the actual “green” premium or “brown” discount remains challenging.
Our initial research, however, suggests that buildings with higher Green Mark ratings tend to command higher occupancy and rents in general. The rental premium could widen in the future as more companies commit to net-zero carbon emissions.
Occupancy rates of office buildings with Green Mark ratings are observed to hold firmer than their non-Green Mark-certified counterparts. Between 4Q2020 and 2Q2022, the average occupancy rate of office buildings in the CBD with Green Mark ratings remained at about 2%-4%, higher than that of office buildings without Green Mark ratings. Not surprisingly, office buildings with the Green Mark Platinum achieved the highest occupancy over the same period.
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As the office market bottomed out around the middle of last year, average occupancy rates of office buildings without Green Mark ratings fell more steeply compared to office buildings with Green Mark ratings. The resilience in occupancy could be due to the strong tenant profile of sustainable buildings.
OFFICE INTERIOR - EDGEPROP SINGAPORE
Given that the best office buildings tend to be highly accredited and factors such as location will also affect rents, measuring the actual “green” premium or “brown” discount remains challenging (Photo: Cushman & Wakefield)

Rental gap of 10% in 2Q2022

Green buildings tend to attract occupiers that put a greater emphasis on sustainability and are generally more resilient to crisis. These occupiers likely have managed to sustain their lease and maintained occupancy over the pandemic. Many studies have also pointed to a positive correlation between sustainability and resilience.
To examine the rental differential between sustainability-accredited and non-accredited buildings, rents of Grade-B office buildings in the CBD with Green Mark ratings were compared against those without any ratings. Our findings suggest that there is a rental gap (10% as of 2Q2022), and this has risen over the years.
Within the CBD Grade-A office market, Green Mark Platinum-accredited office developments are observed to command higher rents over buildings with lower ratings (Green Mark GoldPlus and Gold) on average. The rental gap rose to 11% in the first half of this year, given a flight to quality.
Notably, this rental gap fell in 2020 as landlords were more flexible on rents due to uncertainty during the early stages of the pandemic. The rental difference between office buildings with and without a Green Mark rating has averaged around 7% from 2016 to 1H2022.
Nonetheless, there are exceptions. OUE Bayfront, a Grade-A office building, can command top-of-market rents due to its panoramic view of the CBD skyline and quality building specifications, despite not possessing the Green Mark Platinum rating.
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OUE Bayfront - EDGEPROP SINGAPORE
OUE Bayfront, a Grade-A office building, can command top-of-market rents due to its panoramic view of the CBD skyline and quality building specifications, despite not possessing the Green Mark Platinum rating (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Flight to sustainability

Our research suggests that sustainable office buildings command higher rents and occupancy rates, and striving for the highest level of green-mark certification has an economic impact. While this is not determinative of a green premium, it aligns with the views that sustainability can be a competitive edge for landlords.
Indeed, new office buildings are poised to raise sustainability benchmarks. For example, the Keppel Towers redevelopment (targeted completion in 2024) has been awarded the Green Mark Platinum Super Low Energy (SLE) accreditation, and the redevelopment of Shaw Tower (target completion in 2025) also plans to attain the same Platinum SLE accreditation.
The pressure on greening will only increase. Singapore’s Green Building Masterplan aims to green 80% of Singapore’s buildings by gross floor area (GFA) by 2030, ensure 80% of new buildings by GFA are SLE buildings from 2030 and achieve 80% improvement in energy efficiency for best-in-class green buildings by 2030.
With rising public awareness of sustainability and more businesses committing to zero-carbon goals, the future office market landscape will be characterised by a flight to sustainability.
New ShawTower - EDGEPROP SINGAPORE
The redevelopment of Shaw Tower (target completion in 2025) also plans to attain the same Platinum SLE accreditation (Photo: Lendlease/Shaw Tower)

Stricter building requirements

Building owners and operators should continue to embed sustainability in a building’s life cycle, although there is no shortage of green office options in Singapore. Based on BCA’s Listing of Building Energy Performance Data for 2020, more than three-quarters (81%) of large office buildings islandwide by GFA have a Green Mark certification, of which the majority (61%) has achieved the Platinum rating.
Under a refreshed BCA Green Mark 2021 scheme (GM: 2021), buildings must meet higher minimum energy-efficiency levels and score enough points in the sustainability sections to be certified green.
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Due to the more stringent criteria, some office buildings may see a downgrade, or even loss, of their Green Mark ratings, based on our assumptions.
Amid rising energy costs from inflationary pressures and growing demand for sustainable office buildings that could command higher rents, the owners of buildings should consider asset enhancement initiatives that incorporate energy-efficiency retrofits to improve the building’s performance and refresh its Green Mark ratings.
OCCUPANCY RATES - EDGEPROP SINGAPORE
OCCUPANCY RATES - EDGEPROP SINGAPORE
Source: Cushman & Wakefield
To help defray upfront costs, building owners can tap into green financing to fund their sustainability initiatives. For example, UIC obtained a $100 million green loan from UOB and DBS Bank to finance a major upgrade at Singapore Land Tower. There are also grants under the Green Mark Incentive Scheme for existing buildings, which was recently enhanced to $63 million.
The installation of smart building management systems, for instance, could beef up the efficiency of ageing equipment, potentially resulting in cost savings and a delay of capital expenditure for equipment replacement. In a case study, C&W Services managed to raise the efficiency of a 12-year-old chiller by 20% and defer its replacement by five years with the installation of an energy management system.
Internet of Things technology, data analytics tools and a skilled workforce would work hand in hand to deliver innovative yet cost-effective solutions that promote energy efficiency, elevate tenant experience and achieve the target Green Mark rating.
With more corporations and governments accelerating their climate goals, the flight to sustainability will be an enduring one. Assets that are not refreshed will risk getting “stranded” amidst the global green push.
Ho Chee Kit  - EDGEPROP SINGAPORE
Ho Chee Kit is Cushman & Wakefield senior director, corporate and asset services
Wong Xian Yang - EDGEPROP SINGAPORE
Wong Xian Yang is Cushman & Wakefield head of research, Singapore
Check out the latest listings near Keppel Towers, Shaw Towers, Singapore Land Tower

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