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Saturday, April 30, 2011

A green look at property value

A growing number of developers and building owners in Malaysia are recognizing the value of going “Green”. The term sustainable development has interchangeably been used to reflect “green features” in the development.

In some countries, sustainable development has a deeper meaning than simply applying “green features” as it is used to tackle a number of global issues such as poverty, inequality, hunger and environmental degradation.

But, in the context of property development in Malaysia, it can generally be referred to as practices that can lead to more environmentally friendly and ecologically responsible decisions and lifestyles, which can help protect the environment and sustain its natural resources for current and future generations. Earth Summit in Rio, Brazil in 1992 was one of the major international efforts to bring sustainable development to the mainstream.

In Malaysia, while some developers have taken their own initiatives to achieve international green certification such as LEED, and BCA Green Mark, the establishment of a green rating tool known as Green Building Index (GBI) by Greenbuildingindex Sdn Bhd, a group of architects and engineers in February 2009 has marked another level of achievement in our effort to preserve and save the environment. Developed to promote green design, construction, reconstruction and operation of buildings, GBI focuses on six green criteria, such as energy efficiency, indoor environmental quality, sustainable site planning and management, materials and resources, water efficiency and innovation.

It was reported that currently there are 21 GBI-certified buildings; some of them are Sunway SPK 3 Harmoni, 311 House, Ken Bangsar Serviced Residences, Pusat Tenaga Malaysia, 1 First Avenue and Menara Worldwide.

In March this year, GBI Township Rating Tool was launched to further mark a green effort to transform our communities. The six assessment criteria are climate, energy and water; ecology and environment; community planning and design; transportation and connectivity: building and resources as well as business and innovation. Five pilot projects that were reported to have registered with the GBI are TTDI Alam Impian, Boga Valley, Ken Rimba, Elmina East, and Karambunai Intergrated Resort City.

With the growing interest in green development, critical questions have been raised by property buyers and investors - whether there is an enhancement to the market value of green-rated properties or is it an over-enhancement? Will these green properties be more marketable and attractive for investment purpose? In Malaysia, a comprehensive study on this subject has yet to be conducted. However, at this stage, we can also learn from experience in countries that are more advanced in the green initiatives.

A survey conducted by New York Times in 2006 concluded “when faced with the choice of renting or buying two similar apartments, consumers increasingly will opt for the one with Green features, even if it comes at a higher price.” In a study on the need for Green features in buildings conducted by Harvard Business Review in the same year, it recommended that building owners of “standard” buildings needed to adopt Green features, otherwise their buildings would face massive obsolescence.

In Germany, which is more advanced in its environmental movement, sustainability has become a key factor, where building owners would have difficulty leasing the properties if environmental measures were not taken into consideration.

Jamestown Properties, a German commercial real estate investment company, has recently announced that it will invest its entire US$4bil portfolio of buildings in the United States in “green” buildings. Other prominent investment funds that are incorporating green buildings and energy-efficient buildings and other principles of sustainability into their property selections and portfolios are Investa Commercial Property Fund based in Australia and Rose Smart Growth Investment Fund 1 in New York.

In terms of rental rate, a study led by Professor John M. Quigley of University of California in Berkeley concluded that rents for green offices were about 2% higher than rents for comparable buildings within the same area. However, in terms of appreciation, the result has yet to be seen because most of these green-rated buildings have been around only for the last few years and only a few, if any, have been re-sold.

And the profile of prospective buyers might also influence the value placed on the properties. For example, a buyer or tenant who places high value on green efforts as part of their Corporate Social Responsibility might be willing to pay higher prices or rental. In the case of Jamestown Properties, some of the properties will be held between seven and 10 years to benefit from reduced operating costs.

Back home, the asking rental rate at Menara Worldwide, a newly completed GBI-certified office building at Jalan Bukit Bintang is RM6 psf, which is comparable to the average rental rate of standard prime buildings in the city centre. Rental rates of existing prime office buildings within this area range from RM5.80 psf to RM7 psf. On the other hand, the asking rental rate of another GBI-certified office building, G Tower, which was completed in 2009 and also a MSC-status building, is RM6.80 psf, about 13% higher than the average rate of RM6 psf.

Rental rates of existing prime office buildings within this area range from RM5.50 psf to RM9 psf. In 2009, Shell People signed a 15-year lease at rental rate of RM8.50 psf for office space at 348 Sentral, which is expected to be completed in 2012 consisting of 33-storey office tower and 21-storey serviced residence to be certified by LEED Gold standards. Current rental rates of existing prime office buildings within this area range from RM6 psf to RM7 psf.

It can be concluded that at present, the difference in rental rates between green and non-green buildings is not so much due to the green features, but more of supply and demand factors within the specific location. With proper method of valuation being used to take into account green features, I believe there would be more recognition of the actual benefits of green buildings in the future.

Senator Datuk Abdul Rahim Rahman is the executive chairman of Rahim & Co group of companies.

By The Star

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