Asia Pacific cities facing shortage of sustainable office buildings: JLL

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SEA office rents to fall 5-7% due to weak demand, rising supply: JLL

Net-zero carbon (NZC) targets have prompted companies to make real estate decisions on sustainable buildings, yet there is a critical undersupply of sustainable offices in major cities in the Asia Pacific (Apac) region, according to a research report released by JLL in October. Kamya Miglani, Head of ESG Research, Asia Pacific at JLL, notes: “Leasing office space in green-certified office buildings is becoming non-negotiable for occupiers, but currently there is very little correlation between these certifications and a building’s energy performance.”

JLL’s Sustainable Offices City Index evaluated 20 cities in Apac on four themes – green stock, physical risk to buildings, city competitiveness and city administrations’ proactiveness with NZC targets. It highlighted that even buildings with platinum-grade green certifications may not meet NZC requirements because current regulations are not stringent enough.

For example, Sydney, the top-ranked city in the index, is expected to face an 84% undersupply of NZC-ready office space by 2027. Hong Kong and Mumbai, which are placed in the bottom half of the index, are likewise expected to see a 68% and 62% supply deficit of top-quality sustainable workplaces, respectively.

Meanwhile, Singapore is expected to face a 56% undersupply of NZC-ready offices by 2027, while Melbourne and Delhi are estimated to see a 43% and 44% undersupply respectively.

Miglani stresses that occupiers risk being stuck with limited options if they don’t plan ahead and re-evaluate the sustainability credentials of their current premises. To bridge the supply-demand gap of ESG-focused office space, JLL says the region needs to accelerate the rate of retrofitting. The company points out that over half a billion sq ft of Grade-A office space in the region built before 2011, making the retrofitting potential substantial in Apac.

Certain cities in the region have already started taking steps to address the undersupply issue. Australia introduced an energy performance measure in the National Australian Built Environment Ratings System in June, which rewards building owners for electrification of buildings and procurement of renewable energy for building operations. In Singapore, subsidies have been provided to building owners to lower upfront capital costs for energy-efficiency retrofits.

Miglani concludes: “The involvement of governments, coupled with corporate demand and action, will fuel the momentum and ensure a steady pipeline of NZC-ready office stock in the future.”